Oral Answers to Questions

HEALTH

The Secretary of State was asked—

Healthy Start Scheme

Helen Goodman: What steps she is taking to encourage healthy eating by pregnant women.

Caroline Flint: The new healthy start scheme, which was launched nationwide yesterday, promotes good nutrition for certain low-income pregnant women and all pregnant under-18-year-olds by providing vouchers to spend on a range of healthy foods. All Members of Parliament were sent details of the scheme last week.

Helen Goodman: I am most grateful to the Minister for her response. In October, I spent a week trying to live on income support and to eat a healthy diet fit for a pregnant mother. I could not afford to eat five portions of fruit and vegetables every day, so I know that this announcement will be very welcome. For it to be really effective, it has to be available throughout the country. How many retailers have signed up to the scheme, and what is my hon. Friend doing to ensure that it is available in all communities?

Caroline Flint: My hon. Friend is right. The scheme widens the range of choice beyond the traditional milk offered under the welfare food scheme to include fruit and vegetables. Retailers large and small will be given the opportunity to back the scheme. We are working on a recruitment target of 35,000 retailers with more than 40,000 outlets, which will double the amount in England by about 30,000. The pilot in Devon and Cornwall has enabled small retailers to think about how they can get on board with the scheme—that is welcome.

Nadine Dorries: Advice to pregnant women is lacking in many respects, not only on healthy eating. Thankfully, when a pregnant woman seeks an abortion she is seen and counselled by two professional doctors—

Mr. Speaker: Order. That is slightly wide of the question.

Patrick Cormack: rose—

Mr. Speaker: I shall try Patrick Cormack—perhaps he will stick to the question.

Patrick Cormack: I will do my very best, Mr. Speaker.
	While I entirely applaud the Minister's sentiments, does she accept that for many of us this is a step too far? It is not the job of Government to tell people what to eat and how to conduct their lives. This is elevating the Secretary of State to the nanny of the state, and we do not want that.

Caroline Flint: Healthy start is a revamp of the welfare food scheme, which has been around for about 60 years, so the hon. Gentleman and his party had the opportunity to get rid of it or revamp it during their 18 years in power. The scheme is not only about providing the vouchers and the extension to fruit and vegetables—parents said they wanted that flexibility—but about giving midwives and health visitors the opportunity to play an important part in supporting families, particularly in the early days of babies arriving, by giving them the best advice, which they can choose whether to take, on the best possible healthy and nutritional start for their children. Importantly, the scheme is also about pregnant mums and the benefits that they derive from a good diet.

Meg Hillier: How will women in my constituency and elsewhere find out about the scheme, and how can we, as Members, encourage them to access it?

Caroline Flint: All families who are currently part of the welfare food scheme will be transferred automatically on to the healthy start scheme. For pregnant women, that should be discussed when they check in for their ante-natal care with their midwives. We are providing a pack to every health professional, health visitor and midwife throughout the country; we are doing work with Sure Start; and we are providing my right hon. and hon. Friends, and hon. Members across Parliament, with information so that you, too, can spread the word across communities —[Interruption.] I meant colleagues, not you, Mr. Speaker, although you could do so as well. We will monitor take-up because we want get the widest possible reach into as many communities as possible, particularly for those on low incomes.

NHS Trusts (Budgets)

Simon Hughes: What changes in the budgets for 2006-07 for NHS trusts serving Lambeth and Southwark have been agreed since her meeting with me, the right hon. and learned Member for Camberwell and Peckham (Ms Harman), the right hon. Members for Dulwich and West Norwood (Tessa Jowell) and for Streatham (Keith Hill), and the hon. Member for Vauxhall (Kate Hoey).

Patricia Hewitt: Following the meeting to which the hon. Gentleman refers, I asked NHS London to look again at budgets in Lambeth and Southwark. It has confirmed that after other factors have been taken into account, Lambeth and Southwark primary care trusts were asked to contribute less to the London-wide risk reserves for this year than most other London PCTs.

Simon Hughes: Does the Secretary of State accept that although Lambeth and Southwark are among the two most deprived boroughs in the country and have the most health service needs, that although we have cuts totalling an estimated £23 million to the Guys and St. Thomas', King's College Hospital and South London and Maudsley Trusts, that although there was no dispute that that will affect community services, mental health services, preventive health services and others, and that although she agreed at our meeting that it was unfair, there has been no change—there will be just the same cuts, and this year the two local communities will suffer exactly the same reduction in their services as before the meeting, which we left thinking that she was likely to be able to influence the result and produce a fairer outcome?

Patricia Hewitt: As I explained to the hon. Gentleman when we met, the NHS in London and in other regions was asked to take into account the impact of the technical adjustment that was made through what is called the purchaser parity adjustment. It has done that, and it is because of that that Southwark and Lambeth have been asked to contribute less to the London-wide reserve than most other PCTs. Of course this is difficult, particularly in Southwark and Lambeth, which are very deprived communities, but the speed with which they will get back the money that they have contributed this year will depend on the speed with which other, overspending organisations in London get themselves back on track and cease to rely on organisations that are in balance to compensate for their overspending.

Kate Hoey: As one of the other Members at that meeting, I share the concerns expressed by the hon. Member for North Southwark and Bermondsey (Simon Hughes), because we left the meeting thinking that there would be some changes. The new planning framework shows a further 3.6 per cent. cut next year in Lambeth and Southwark. These are the most deprived areas in London, and the cuts will affect projects such as the healthy living centre in Stockwell, which will have to close, and all sorts of provisions that affect ordinary people in their daily lives. Why is the Secretary of State not considering the poorer PCTs that have stayed in budget yet have to suffer because of the overspending of others?

Patricia Hewitt: It is precisely for that reason that we are insisting that overspending organisations, of which there are far too many in London, get their finances back under control so that we do not have to go on asking the communities in areas such as Lambeth and Southwark, which have been in balance, to make these difficult decisions. As I explained in the letter that I sent to my hon. Friends and other hon. Members after the meeting, it is simply not possible for the NHS in London to reopen the allocations, and the decisions that were made with all the London PCTs, to deal with the situation this year. We will continue to ensure, through the allocations formula, that the areas with the biggest needs get the biggest growth. That will be fair to Southwark and Lambeth. It is, of course, opposed by the Conservatives.

Patient Satisfaction

Paddy Tipping: What research she has recently commissioned into patient satisfaction with the NHS.

Hon. Members: Answer the question.

Mr. Speaker: Order. Ministers must be on the ball. Who is taking Question 3?

Patricia Hewitt: Forgive me, Mr. Speaker. I thought that another hon. Member was seeking to ask a supplementary on Question 2.
	Yesterday, we announced our plans to survey 5 million patients to measure how easy it is for them to see their general practitioner. This the first time that the Government have asked patients directly about their experience of the GP appointments system.

Paddy Tipping: I am very grateful for that answer. Has my right hon. Friend seen the recent survey by the Healthcare Commission, which shows that 92 per cent. of patients rate their experience of the NHS "good" to "excellent"? In the light of that, what can she do about closing the gap in perception between those who use the NHS and those who merely read about it?

Patricia Hewitt: That was a supplementary question well worth waiting for. My hon. Friend is absolutely right about what patients say about their experience of the NHS, and I am sure that all of us would want to pay a real tribute to NHS staff. There is a big gap between patients' experience and public perception, however. I hope that Conservative Members and the media all around the country will continue to pay at least as much attention to all the improvements taking place in the NHS as they pay to the sometimes difficult decisions that have to be made in some areas.

Nigel Waterson: Will the Secretary of State also assess the impact on public satisfaction with the NHS reconfiguration process of, for example, the announcement last week by the hospitals trust in my constituency that it will definitely close one of the maternity units in the trust, despite the fact that the public consultation on that option is not due to start until the middle of January?

Patricia Hewitt: No decisions are made on significant changes to services of the sort that the hon. Gentleman describes without full public consultation and the involvement of local councillors through the overview and scrutiny committee. I very much regret that, on occasions, when local primary care trusts and hospitals are considering changes—which are generally driven by the need to keep up with changes in medicine and clinical practice and to give patients even better care—people leap to the conclusion that there are to be cuts or reductions in services and protest before any decision has been made.

Charlotte Atkins: In the context of patient satisfaction, is my right hon. Friend aware of the deep vein thrombosis diagnostic service at Leek Moorlands hospital, which last month won the Community Hospitals Association award for innovation in clinical practice? Not only have almost 200 patients been saved a difficult journey to the acute hospital, but emergency capacity has been freed up, saving the local PCT £100,000 a year. The service will now be rolled out across the boundaries of the new reconfigured primary care trusts. Will she congratulate the team on their excellent work in that area?

Patricia Hewitt: I am aware of that service, which is absolutely excellent— [Interruption.] Unlike Conservative Members, I want to congratulate all the staff involved in providing an excellent service, which shows how the modern NHS can both improve care for patients and save money, especially on services previously provided in an acute hospital, thus freeing up resources to spend, for instance, on new drugs and other service improvements that patients also need.

Michael Fallon: Is the Secretary of State aware that 83 per cent. of patients surveyed in a recent breast cancer forum were unaware of the hospital travel costs scheme? Will she consider again whether trusts can be persuaded better to advertise that scheme and to make claiming under it easier?

Patricia Hewitt: Of course I will consider the issue raised by the hon. Gentleman. As he indicates, however, it is very much the responsibility of local hospitals to ensure that patients, particularly those such as cancer patients who must have repeated treatment, are aware of the help with travel costs that is available.

Jane Kennedy: Research confirms the high level of public and patient satisfaction with Alder Hey, the Royal Liverpool children's hospital in my constituency. Will my right hon. Friend ensure that the national burns review takes into account the high level of public satisfaction with the burns treatment available at Alder Hey and at Whiston? Will she also ensure that, alongside other options, the national review seriously considers encouraging burns centres across the north of England to network together to improve burns treatments and therefore support even higher levels of public satisfaction?

Patricia Hewitt: My right hon. Friend is absolutely right about the high levels of public satisfaction, which reflect in part that waiting times, for instance, are shorter than ever before. We will consider carefully the review of specialist burns units and its recommendations, but she is right that a network of specialist centres is needed to ensure that those patients with the most serious burns receive the necessary specialist attention, which only a limited number of specialist centres can provide.

Steve Webb: A Healthcare Commission survey of patients this year found that more than one in five had had to stay in a mixed-sex room or bay. Given that the 1997 Labour manifesto said that the Government would work towards getting rid of mixed-sex wards, the 2001 manifesto said that they would abolish them, and the 2005 manifesto did not mention the subject at all, when will the promise be kept?

Patricia Hewitt: The Healthcare Commission survey to which the hon. Gentleman refers includes patients who had recently been cared for in accident and emergency or medical admissions units. When we set the target for single-sex sleeping accommodation, we asked trusts to report on the wards used for regular admissions, not A and E or medical admissions units, which, as Sir George Alberti, the national clinical director for emergency care, has pointed out, cannot always provide single-sex accommodation, because to do so would mean turning away patients who were critically ill and needed short-term observation. We have achieved 95 per cent., which was the target that we set back in 2004, and 99 per cent. of hospital trusts say that they now provide single-sex accommodation in their general wards along with single-sex bathrooms and toilets.

Sadiq Khan: A couple of the consequences of the massive talking-down of the NHS by the Opposition are massive demoralisation among staff and patients being scared to receive treatment. Will my right hon. Friend please ensure that some of the research and surveys that she has mentioned are widely disseminated to bust the urban myths put out by the Opposition?

Patricia Hewitt: I entirely agree with my hon. Friend. We try all the time to put across the good news about what NHS staff are now achieving, backed by record investment that the Conservatives oppose. With waiting times at their shortest and cancer treatment in particular having been transformed over the past 12 months, there are many reasons for patients and the public to be enormously proud of what the NHS is achieving, although there is still more to be done.

Andrew Lansley: In her first answer, the Secretary of State referred to the survey assessing satisfaction with GPs' services. The Department of Health has added two more questions, about the opening hours of general practices.
	It is the Government's own GP contract that has led to the closure of practices on Saturday mornings. Does the Secretary of State seriously intend to ask patients whether they want surgeries to be open on Saturday mornings—although their surgeries are not commissioned to be open— and subsequently withhold payments from GPs?

Patricia Hewitt: The hon. Gentleman must decide whether patients should be asked whether they are satisfied with the arrangements that their local GPs are making. He must also decide whether he thinks GPs should have been given the choice—which we gave them—of whether to provide out-of-hours services.  [Interruption.] That was the choice that we gave them in the survey.
	The result of the new contract is that GPs are providing better services for patients according to the quality and outcomes framework, and doing much more work on prevention and long-term care. They are also receiving big increases in payments. I think it right for us to ask patients for their views on their local practices, and to adjust payments to general practices accordingly.

Andrew Lansley: It is always rather depressing when it clear that the Secretary of State does not understand. If GPs are not commissioned to open their surgeries on Saturday mornings, there is no basis on which they can do so, and it is therefore difficult to assess them on that ground.
	The satisfaction survey ought surely to extend to out-of-hours services, but the Government do not seem to intend that to happen. Will the Secretary of State undertake to extend the survey to those services? Then, perhaps, she will be able to explain why patients have an out-of-hours GP service that is much less satisfactory to them than it used to be, and why the Government are spending not the £105 million that they thought it would cost last year, but £346 million—a quarter of a billion more than they expected.

Patricia Hewitt: It is the hon. Gentleman who simply does not understand the new GP contract. The new contract, which has led to primary care services being rated as better in our country than in almost any other advanced country—as is shown in a recent survey by the Commonwealth Fund—allowed GPs to choose whether to provide out-of-hours services, in which case they would receive higher payments, or to hand the responsibility back to the primary care trusts. PCTs commission out-of-hours services where local GPs have decided not to provide them themselves. If all PCTs commissioned those services as efficiently as the best, they would save money on the allocation that we made, rather than overspend.
	We do indeed survey patients about their satisfaction with out-of-hours services, and more than 80 per cent. are satisfied or very satisfied with the services that they are receiving.

Andrew Gwynne: Choice has also been a major factor in patient satisfaction. Patients in parts of my constituency now have access to their medical records online, which is proving hugely beneficial. Has my right hon. Friend any plans to roll that out so that all my constituents can benefit from it?

Patricia Hewitt: My hon. Friend is absolutely right. By extending choice and the control that patients have over their own services, we are in increasing the responsiveness of the NHS to what patients want and contributing to that increased satisfaction. Through the NHS IT programme, we are trying to ensure that patients everywhere will have access to the online services about which some of my hon. Friend's constituents are already so pleased.

Mid Essex Hospital Services NHS Trust

Simon Burns: How many compulsory redundancies have been made in the Mid Essex Hospital Services NHS Trust area in the past six months.

Andy Burnham: The Mid Essex Hospital Services NHS Trust has announced that 24 members of staff have been made redundant. The trust is making every effort to protect front-line services.

Simon Burns: I am staggered by the Minister's response because a written answer from his Department of only two weeks ago informed me that the figure was 42, rather than the number that he has given. Also, as the Minister should know but might not, on the same day a further 203 jobs were cut in the hospital trust. I am therefore staggered by the Minister's response. I want him to explain something to me and my constituents. Since those 245 job cuts were announced, the Government have changed the regime for redundancy pay. Given that those job cuts are being made to reduce the deficit in the trust, how do the Government reconcile changing the redundancy arrangements for trusts seeking to cut their deficits?

Andy Burnham: I will check whether there is that discrepancy between the figures that the hon. Gentleman has brought to my attention, and if there is I will correct it. However, yet again he and other Conservative Members are seeking to spread anxiety by quoting figures that do not reflect the reality.  [Interruption.] They seek to create an impression that P45s are being handed out to nurses up and down the country; in reality, that is not the case.  [Interruption.] If he or his party continue to try to spread anxiety in that way, that will not reflect well on them.
	The hon. Gentleman and his colleagues have been lobbying me about a new hospital for the trust—he goes quiet and listens now that I mention that. If that trust is to get that new hospital, it must of course be financially viable. Although the decisions that have been made are difficult for the staff concerned, I hope that the hon. Gentleman will support my party in helping the trust make the difficult decisions that will get it into a financially stable position, as that will enable it to have the new hospital that he keeps on asking us to provide.

Richard Taylor: Does the Minister agree that compulsory redundancies are likely to be only part of the cause of staff reductions in that trust and throughout the rest of the NHS? As an example for the rest of the NHS, will he consider breaking down staff reduction figures into compulsory redundancies, voluntary redundancies, retirements and the vacancy factor effect in respect of the 10 per cent. of staff that are turned over every year?

Andy Burnham: I thank the hon. Gentleman for that constructive question, because he is absolutely right. We want to put correct information into the public domain. There are some who seek to use figures to scare, and spread anxiety in, the national health service, so we fully recognise the need to put accurate figures into the public domain so that people can make their own judgments about the state of work force planning within the system.
	The hon. Gentleman is right that there is a need to put out more information, and we have put information into the public domain about voluntary redundancies. On a trust-by-trust basis, trusts are making statements about reducing their use of agency staff. I will constructively take on board the point that the hon. Gentleman has made, and we will of course seek to put accurate information into the public domain as and when we can.

PCTs (Local Services)

Natascha Engel: What steps she is taking to safeguard the provision of small local services affected by the changes to primary care trust boundaries.

Ivan Lewis: It is for primary care trusts, in consultation with local people, to decide what small, localised services are needed in their areas.

Natascha Engel: I thank my hon. Friend for that answer. In particular, I want to raise the issue of toenail-cutting services for elderly people. It is an important service and it should be raised. Because of the redrawing of the boundaries of the primary care trusts, I am seriously worried that small local services that are vital for elderly people—such as those who cannot reach their feet—are not being safeguarded. I would very much like the Minister to give an answer that reassures me that such small, vital services are being safeguarded in PCT funding.

Ivan Lewis: My hon. Friend raises an important issue: toenail-cutting services are important for older people, particularly those with diabetes or vascular problems. In such circumstances there is a commitment to maintain those services. However, I must also say to my hon. Friend that one of the reasons why a review is taking place is that some people have been receiving those services for more than 10 years, and although that might be entirely appropriate for some older people, it might not be necessary for others. The objective is to make sure that those services are protected where there is clinical need, because they are an important lifeline for many older people, but we must also make sure that resources are used appropriately.

David Tredinnick: Is the Minister aware that among the worst affected small local services are the integrated health care services of chiropractic, homeopathy and herbal medicine? Is he also aware that his right hon. Friend the Secretary of State for Health, when she was presenting the Acorn award for integrated health care at the NHS Alliance conference last week, said that they are what patients want? Why, therefore, are there cuts across the board in primary care trusts, and why are the Tunbridge Wells and Royal London homeopathic hospitals under threat? Will he and the right hon. Lady—

Mr. Speaker: Order. That was too many supplementary questions.

Ivan Lewis: I know that the hon. Gentleman has a long-standing interest in, and commitment to, complementary medicine, as Members in all parts of the House will acknowledge, but the fact is that more than 50 per cent. of GPs do use complementary medicine and make sure that it is available to their patients in some circumstances. The hon. Gentleman asks me to intervene in local PCT decision making, but I should point out that his own Front Benchers are suggesting that we have complete operational independence for the health service, where local decision making will be the norm.

Linda Gilroy: Has my hon. Friend heard from the Minister, my hon. Friend the Member for Don Valley (Caroline Flint), about the interest that she has taken in Trevi house, which is a unique drug rehabilitation centre in my constituency for young mothers and children? Indeed, I thank her for the help that she has recently offered to them. However, will he and his colleagues give serious consideration to issuing guidance to PCTs about the position of such small services? Two or three places are provided for the Plymouth PCT area, but a regional and a national service is also provided.

Ivan Lewis: My hon. Friend the Minister has made me aware of the excellent work that Trevi house does. I believe that my hon. Friend the Member for Plymouth, Sutton (Linda Gilroy) has visited the service, and she makes a really important point. An holistic approach is taken there, and the rehabilitation services that are available not only for women who have had drug-related problems, but for their children and other family members, are incredibly important. In issuing commissioning guidance to PCTs, one of the things that we are most concerned about is rehabilitation outcomes and the needs of those women and children and the families as a whole. Where such quality services are being provided in the voluntary sector or perhaps by social enterprises, we will try to ensure that commissioners understand that we expect them to commission such services against the outcomes that we specify.

David Heath: One way to conserve and perhaps develop local services is to realise redundant assets. Will the Minister therefore look at the situation of the Queen Camel doctors' surgery, which has lain empty for several years since the new surgery was built? It is situated right in the middle of a village, is vandalised regularly and is an eyesore, yet my repeated approaches to the South Somerset primary care trust, and now to the Somerset PCT, have failed to lead to its being sold. Will the Minister look into this issue, find out why probably £500,000 of NHS assets is being wasted, and write to me?

Ivan Lewis: I am more than willing to ask the PCT to have a look at this issue, which is exactly the sort with which the Member of Parliament concerned, the local authority, the PCT and, indeed, the local voluntary sector should engage, in order to come up with a solution that meets the needs of the local population. However, this is not necessarily a job for me, sitting in an office in Westminster or Whitehall, but I am willing to contact the PCT and to ask it to engage properly with the hon. Gentleman in an effort to resolve the issue.

Ill Health Retirement

David Anderson: What assessment she has made of the potential impact of retirement through ill health of NHS staff on funding available for service provision; and if she will make a statement.

Andy Burnham: There has been a major decrease in the number of awards of ill health retirement in the NHS—from 9,520 per year in 1993-94 to 2,673 per year in 2005-06. It was estimated in November 2001 that each ill health retirement involving a pension cost the pension fund up to an extra £60,000, and cost the trust the same again in indirect costs.

David Anderson: I thank my hon. Friend for that answer. Will he reassure the House that staff are not being coerced or forced into applying for early retirement in order to mask the numbers facing compulsory redundancy?

Andy Burnham: I certainly can give my hon. Friend that assurance, and I also wish to pay tribute to him and other colleagues in the trade union movement who have played a part in bringing down the number of ill health retirements in the NHS. The NHS as an employer has been in the spotlight this year, and today in the House, but sometimes the good things that it does—including the way in which it looks after its staff—do not get the appropriate praise. We should give the NHS that praise. My hon. Friend will know that the NHS, in consultation with the unions, has looked at managing ill health retirement and, by making earlier use of occupational health services and redeploying staff from onerous duties, it has managed to bring down the figures. More work remains to be done, but I would never countenance the manipulation of the figures that my hon. Friend suggests.

Andrew MacKinlay: Those figures, which are welcome, suggest abuse in the past, and that people have retired on health grounds without justification. At a time when we are reorganising the NHS, will my hon. Friend and his colleagues ensure that any applications for retirement on grounds of ill health or redundancy are rigorously examined, bearing in mind the fact that there is a duty on the trade union and the employer to explore all opportunities for redeployment, to avoid those bogus and costly charges on the public purse?

Andy Burnham: My hon. Friend makes an important point. Of course, the peak of 9,500 in the early 1990s was for a much smaller work force. The figure for the last financial year—2,673—is for a much larger work force, with some 300,000 extra staff. That shows a much better performance. My hon. Friend is right about redeployment, and we will continue to work with NHS employers to look at every possibility for keeping staff in the service and retaining their skills and knowledge, by helping them to work elsewhere if they are struggling in their existing job. I will reflect more on the important point that my hon. Friend makes.

Northamptonshire Heartlands PCT

Peter Bone: What the weighted capitation allocation for Northamptonshire Heartlands primary care trust was for 2003-04 to 2005-06; and how much was available to be drawn down by the PCT over the same period in relation to the capitation allocation.

Andy Burnham: Northamptonshire Heartlands PCT received revenue allocations of £222 million in 2003-04, £244 million in 2004-05 and £267 million in 2005-06. Over the three years covered by this allocation, Northamptonshire Heartlands PCT received an increase of £63.6 million. By the end of 2005-06, the PCT was 4.4 per cent. below its target allocation.

Peter Bone: In August 2005, Sir Richard Tilt, the then chairman of Leicestershire, Northamptonshire and Rutland strategic health authority, said:
	"We are however the worst funded SHA relative to the national capitation formula...Indeed North Northamptonshire is our most pressurised health community. Northamptonshire Heartlands PCT which covers this population...is £32 million (9.9 per cent.) below capitation."
	Does the Minister agree with Sir Richard, and is it not true that we do not have a national health service any more, but a postcode lottery health service? The people of Northamptonshire have drawn very bad numbers.

Andy Burnham: I do not agree with that statement. The hon. Gentleman should cast his mind back to the NHS of the early 1990s before making such comments. Let us get the matter straight. The funding increase that his party voted against —[ Interruption. ] Instead of rolling his eyes, the hon. Gentleman should listen to the facts. His PCT received an increase over the two years of this funding allocation of 29.4 per cent. The national average increase for PCTs was 19.5 per cent. and—

Peter Bone: Not enough.

Andy Burnham: The hon. Gentleman cannot keep saying that. The resources that this Government have put into his local PCT are on a scale never seen before, and they have been adjusted to account for the population increase in his area. Overall, they constitute an extremely generous package for the health service in his area. If he wants more resources for the health service, he should try voting for them next time.

Stephen Dorrell: Does the Minister agree that the principle of fair funding, which the Government say that they espouse, should mean that resources within the growing budget of the NHS, which we all welcome, should be targeted at health need? Does the Minister understand that there is a growing perception throughout the NHS, including in Northamptonshire, that resources in the health service are no longer allocated in a way that reflects the health needs of the population, but are increasingly distributed in a way that reflects the political needs of the Government? Is there not an urgent need—

Mr. Speaker: Order. Questions should be brief.

Andy Burnham: The right hon. Gentleman is straying into territory that is slightly dangerous for his party. His colleague the hon. Member for Wellingborough (Mr. Bone) said that health funding was inadequate because his PCT was under target, but the formula balances a range of factors, including deprivation, age, rurality and market forces, in producing notional target allocations for all PCTs in the country. Recently, the Opposition have suggested that health resources should be distributed according to what they called the "burden of disease". The result of such a policy would be that the constituencies of every Minister on the Front Bench today would get significant extra resources, at the expense of the areas represented by the people who are pointing their fingers at me right now. The Tory party needs to decide—

Mr. Speaker: Order. Now I must appeal for briefer answers, as well as briefer questions.

Rosie Cooper: Perhaps the Minister can help me, because my constituents, who used to be in the former West Lancashire PCT, are a little confused. The money from last year's budget top-slicing will be used to finance NHS facilities in Lancashire, but that excludes the Southport and Ormskirk hospital, which serves my constituents. Moreover, South Sefton PCT—

Mr. Speaker: Order. That is where a brief question should end, so we shall stop there and let the Minister answer.

Andy Burnham: My hon. Friend raises an important point. Overspending by any part of the NHS means that another part of the system has to underspend to make up for that poor use of resources. I represent a constituency very close to hers, and areas such as ours are having to help the NHS collectively and put money into the system to help other areas where there are financial pressures. She is right to say that the system should ensure that the money goes to the areas that need it most, and I shall look very carefully at the problem involving the Southport and Ormskirk hospital.

Stephen O'Brien: Let us try again, after the travesty of an answer that the Minister gave to my right hon. Friend the Member for Charnwood (Mr. Dorrell), a former Secretary of State for Health. The Government calculate the need for health care according to the weighted capitation allocation derived from deprivation indices, but the Minister must know that that need is determined largely by morbidity, and hence age. Northamptonshire Heartlands PCT has a projected deficit of £4 million, and it is being condemned to the regime of cash freeze and cuts experienced by most PCTs that serve older populations. Non-existent public health provision has failed socially deprived areas. Will the Minister concede that his funding formula discriminates against elderly people?

Andy Burnham: No, I most certainly will not. Our health formula gets funding into the areas that need it most, but it is time the hon. Gentleman made his mind up. I think that I heard him correctly: he has just said, at the Dispatch Box, that funding should be distributed according to age. However, less than two months ago the Opposition issued a policy document that stated that funds should be distributed according to the "burden of disease". That is entirely different. The burden of disease—that is, the incidence of diseases such as cancer or coronary heart disease per 100,000 of the population—is larger in my constituency of Leigh than it is in his constituency of Eddisbury. If the Opposition want funding to be distributed according to age, they need to change their policy.

Purley Hospital

Richard Ottaway: When she expects the new Purley hospital to be opened.

Rosie Winterton: Although this is a matter for the local NHS, I am advised that NHS London's timetable is currently dependent on the developers finalising their own plans for the site.

Richard Ottaway: The key point in that reply is that the matter is in the hands of the developers. The Government made a pledge about the hospital nine years ago, which was repeated at the Dispatch Box five years ago, yet we still do not have a firm date, because the project is in the hands of the developers, who are now in some difficulty. Does the Minister agree that this is a classic example of how not to run a public-private partnership for building a new hospital?

Rosie Winterton: I can certainly understand the hon. Gentleman's frustration about the considerable time it has taken to get the project started, particularly as it will bring in £9 million-worth of new investment and bring together acute and community care services, as well as mental health services and a minor injuries unit. I understand his frustration. In February a contract was signed with the developer, and the detail was signed off earlier this month. I know that the hon. Gentleman met the new chief executive of the trust, Helen Walley—on Friday, I think—and I hope that gave him some confidence that the project is now moving forward. I met Helen Walley yesterday, and she is very keen to take it forward. She assured me that she would keep in touch with the hon. Gentleman about his concerns to reassure him that the project is moving forward.

NHS Trusts (Deficits)

Mark Lancaster: What assessment she has made of the impact on services of NHS trust deficits in England.

Patricia Hewitt: In the minority of organisations that do have deficits, the targets we have set—for example, on waiting times and faster access to cancer treatment— are being met. The overall quality of services to patients continues to improve, but I do not underestimate the very difficult decisions needed in some organisations to restore financial balance.

Mark Lancaster: Since the Secretary of State's visit to Milton Keynes in the summer, we have seen the closure of the Fraser day hospital and the surgical assessment unit, cuts to mental health services, cuts to language therapy, cuts to oral health services, cuts to podiatry, cuts in ambulance call-out availability, cuts to counselling services and cuts in payments to the hospital of £2.8 million. Despite all those cuts, the primary care trust still needs to find cuts of another £18 million before March, which the chairman says he has
	"not a cat in hell's chance of achieving".
	As well as promising never to come to Milton Keynes again, will the Secretary of State suggest what the PCT should do to make more cuts in Milton Keynes?

Patricia Hewitt: I and my hon. Friends will promise to continue voting for record investment in the NHS—in Milton Keynes and every other part of the country. The PCT in Milton Keynes is getting more money than ever before and there will be more fast growth in its funding next year. Yes, people have to make some difficult decisions to ensure that they give patients the best care within available resources. As spending for those of the hon. Gentleman's constituents who have cancer is below average, while spending on urgent care is above average, I hope that he will support his local PCT in ensuring that it rebalances that spending, puts more services into the community, and increases investment, for instance, for patients with cancer.

Clive Efford: Even at this time of record investment in the NHS, everyone involved in providing its services, including in my right hon. Friend's Department, has to understand that resources are finite, so local services require careful planning. Does my right hon. Friend agree that introducing independent treatment centres in local health economies needs careful planning, as their effect could be to undermine health care trusts that are trying to recover their budgets and go into balance? Does she agree that where independent treatment centres may have such an impact, they need to be reviewed?

Patricia Hewitt: I entirely agree. We have written a big cheque for the NHS, but it is not a blank cheque; it never has been and it never will be. Of course, we need to look at the introduction of independent sector treatment centres and we are doing so with the strategic health authorities and others, in each region, to ensure that the centres are properly integrated in the local NHS and continue to give NHS patients better care, but also faster care.

Paul Burstow: On Saturday, more than 2,500 people marched in the rain to protest against closures and cuts at St. Helier hospital. What assurance can the Secretary of State give me and my constituents that the decision to close 200 beds and cut 500 staff at the Epsom and St. Helier trust will not result in more mixed wards, more premature discharge of patients who are not well enough to go home and a rise in levels of infection at the hospital?

Patricia Hewitt: The decisions at that hospital are taken first and foremost, as I hope the hon. Gentleman would expect, on the basis of patient safety and quality of care. Difficult decisions have to made in his part of London in order to ensure that the local NHS gives patients the best possible care within the available resources and does not ask other parts and services of the NHS to bail out its overspending. As demonstrated by the quality and value indicators recently published by the NHS Institute, there is ample opportunity, for example, for hospitals to do more day case surgery, providing better care for patients, with better value for money as well. Those decisions are difficult for the staff, as we all recognise, but it is all about getting better care for patients within budgets that are bigger than ever before.

Bob Blizzard: I fully accept the need for our PCT to deal with its own deficit and get into balance by the end of the year, but it is hard when the strategic health authority comes along in mid-year, takes the money away and tells it to get into balance—and even harder when, with four months to go, the SHA comes back and takes more. Will my right hon. Friend ask the SHA to give us a bit of leeway and assure me that we will get our money back quite quickly in future?

Patricia Hewitt: I know that my hon. Friend recognises the difficult decisions that have to be made in order to be fair to trusts that have not overspent, and to ensure that those who have overspent get enough time to take good decisions to get themselves back on track. The NHS is committed to repaying money that has contributed to regional reserves as quickly as possible, usually within the three-year allocation period, and those with the worst health problems will get their money back first. That, I believe, is fair, but the speed with which it can be done depends on the speed with which difficult decisions by overspending organisations can be made so that they get back on track and do not keep asking other people to bail them out.

Maria Miller: Does the Secretary of State share my concern that the present financial crisis in the NHS may be leading hospitals into inequitable ways to balance the books? In Basingstoke, hospital car park charges were raised by 25 per cent. this year and the money was used—and needed—to fund medical services in the hospital. Does the right hon. Lady feel that that is right?

Patricia Hewitt: I would have to refer the hon. Lady to what the right hon. Member for Witney (Mr. Cameron) has recently said. He is not prepared to wipe out overspending any more than I am. If the hon. Lady believes, as does her right hon. Friend, that decisions should be in the hands of NHS professionals, I wish that she and other Conservative Members would support local NHS professionals when they make proposals and decisions to give better care to patients, with better value for money. As her party voted against increased investment in the NHS, I am not prepared to take lectures from the hon. Lady on how that money should be spent.

David Taylor: My near parliamentary neighbour the Secretary of State is right to say that record investment has transformed performance at the three acute hospitals in the city of Leicester that serve our constituencies. The award of an excellent rating a few weeks ago, followed by an award for being the joint best teaching trust, was no great surprise. Was my right hon. Friend disappointed that, almost in the next post, the strategic health authority wrote requiring the University Hospitals of Leicester NHS trust, which covers the three hospitals, to make further in-year savings of £15 million, which led to operational delays, frozen posts and a range of other changes, including reduced training? Can she reassure the House, our constituents and the million people in Leicestershire, Leicester and Rutland that this bitter pill to swallow will—

Mr. Speaker: Order. It really is abusing the House's time to take so long to ask a question.

Patricia Hewitt: My hon. Friend is right to congratulate those at University Hospitals of Leicester on the excellent quality of care that they give to their patients, as confirmed by the Healthcare Commission, but he may not have noticed that, for instance, on day-care surgery those hospitals are well below the national average. On length of stay, for instance for hip fractures, they are well above the national average. Certainly, when I recently met the chair and chief executive of the hospital trust, they confirmed that there is ample scope for them to become even more effective in their use of resources and to continue to give excellent care to patients as a result.

Tim Loughton: May I turn the Secretary of State's attention to deficits in mental health trusts? She knows that in May, Rethink produced the report "A Cut Too Far", which identified at least £30 million-worth of cuts to mental health services, in response to which the Minister of State, Department of Health, the right hon. Member for Doncaster, Central (Ms Winterton), who has responsibility for mental health, said:
	"There is no evidence to suggest that mental health services were being disproportionately targeted compared to other health trusts."
	Last week, Rethink came up with another £37 million-worth of cuts to mental health services, and the Secretary of State's mental health tsar had to admit that
	"some acute trusts should be ashamed that they have had to be helped out by services that have been historically underfunded"
	—that is, mental health services. Who is more in touch with the disproportionate impact of deficits on mental health services—her Minister or her tsar?

Patricia Hewitt: Both our tsar and the Minister of State are absolutely right. There is no evidence that mental health trusts are being asked to take any disproportionate burden while the financial problems are sorted out, but the problem that this underlines is that all too often in the past mental health trusts have bailed out acute hospitals. There is a need to make acute hospitals more efficient, and that means more day-case surgery and reduced lengths of stay so that patients do not spend unnecessary days and weeks in hospitals when they would be better cared for at home. It is high time that the hon. Gentleman supported difficult decisions to make acute hospitals more efficient, to give better value for the money contributed by taxpayers and patients, and in that way, we will ensure that we can go on increasing the already unprecedented funding for mental health services as well.

Bed Closures

Tim Farron: How many community hospitals are carrying out consultations on bed closures.

Ivan Lewis: We do not hold such information centrally, but consultation details are available from strategic health authorities.

Tim Farron: A constituent of the hon. Member for Morecambe and Lunesdale (Geraldine Smith) suffered a suspected heart attack earlier this month, but instead of being rushed to his nearest heart unit in Lancaster, he was redirected to the heart unit at Westmorland general hospital in Kendal in my constituency, because there were not enough beds at the Royal Lancaster infirmary. Does the Minister therefore share my horror that the trust is planning to close Westmorland general hospital's excellent heart unit? Will he intervene to save it?

Ivan Lewis: I understand the concern that the hon. Gentleman expresses, but the Liberal Democrats seem continually to advocate devolution, and decisions being taken as locally as possible. To then suggest that a Minister ought to intervene in local decision making is nonsense. Decisions on patient safety and quality of care must be made locally. Those must be the guiding principles that determine such decisions. I urge the hon. Gentleman to make representations on behalf of his constituents, but to accept that those decisions are responsibly made, and best made, locally.

John Mann: At a cost of only £250,000 a year, my primary care trust is treating 400 drug addicts, thus reducing accident and emergency hospital admissions and the use of beds by drug addicts by more than 400 per cent. Should we not be looking throughout the NHS to see where else we can remove the unnecessary use of NHS beds by drug addicts and others?

Ivan Lewis: I entirely agree with my hon. Friend. We want exactly that kind of best practice to become mainstream. The difficulty is that when there is local advocacy to shift resources, quite rightly, from acute services to community-based and preventive services, the Opposition parties irresponsibly proclaim that that means cuts, when those changes will in fact lead to better services for patients and more rehabilitation, thus preventing such conditions from deteriorating. Surely that is the responsible way to develop a modern national health service.

Andrew Murrison: Those of us with community hospitals and other health care assets that are being shut down on the back of sham, tick-box consultations will agree with the new NHS chief executive, who wrote to MPs last week in the following terms:
	"The NHS certainly needs to improve how we listen, engage and respond to the genuine concerns of the public, patients, clinicians and other stakeholders."
	Developing that statement of the glaringly obvious, will the Minister say specifically what shortcomings Mr. Nicholson has identified during his short tenure, and what improvements in listening, engaging and responding our long-suffering constituents can look forward to?

Ivan Lewis: The Opposition really must think that the British people are stupid. This is the first Government to announce a £750 million programme over five years to develop a new generation of community hospitals, which will shift resources from acute health care to preventive and community-based solutions. It is not true to say that we are going backwards in terms of community hospitals. This is the first Government to say that we need to modernise and improve community hospitals. As for consultation, when we proposed the reconfiguration of primary care trusts, the consultation process took note of what local people said, and as a consequence, many of the proposed reconfigurations were changed. We will take no lectures on consultation from the Opposition.

Diabetes (Stoke-on-Trent)

Joan Walley: What the increase has been in the number of people with diabetes in Stoke-on-Trent over the last five years.

Rosie Winterton: We do not hold the information in the format requested. Our latest figures show that there has been an overall increase in the prevalence rate of diabetes in Stoke-on-Trent of 11.3 per cent. since 2004.

Joan Walley: I thank the Minister for that reply, but in Stoke-on-Trent the rate is 4.2 per cent., compared with the national average of 3.6 per cent. My constituents are distressed about the fact that the PCT and GPs are taking away blood glucose test strips. Does she agree that it is really important to have a structured education and support system in place, and will she work with the national Diabetes UK association and the all-party group on diabetes to try to find a way of making sure that we do not have health inequalities of that kind in areas such as Stoke-on-Trent?

Rosie Winterton: My hon. Friend is right to say that that kind of supported education programme is extremely important. The work done by Diabetes UK, together with some of the regional teams that we have set up through the Department's diabetes national service framework, is making a real difference in many areas of the country. I know that, particularly in her area, diabetes clinics, patient information and the work of the diabetes networks have been effective in putting in place some of the education to which she refers.

Local Government Finance Settlement

Phil Woolas: With permission, I should like to make a statement about local authority revenue finance for England in 2007-08. Sensible planning for service delivery needs a stable and predictable funding environment. The quality of councils' forward budgets, their relations with stakeholders whose budgets they support, and their ability to set low and sustainable council taxes, will all be promoted by predictable funding.
	As I told the House last January, we were then setting out firm proposals for forward financial allocations on a two-year basis—including the use of projected data for population and council tax base. As 2007-08 is the second year of a multi-year settlement, the policy is not to change the settlement, including the data used in the grant calculations, from that previously announced, other than in exceptional circumstances.
	This year's announcement therefore contains no surprises for local authorities. I make a virtue of that, because I am convinced of the advantages of multi-year financial planning, and most of what I hear from councils and their delivery partners, such as those in the third sector, supports that view. Today's announcement launches a period of statutory consultation, and I will fully consider any representations made during the consultation period in the light of the policy in relation to multi-year settlements.
	Within the framework of stability, I am able to provide adjustments to grant allocations for the voluntary merger of the fire services of Devon and Somerset under a new single combined authority, should that go ahead for 2007-08. Today, I am also updating details of individual specific grant allocations to local authorities for 2007-08.
	With the next spending review period, we will move to give three years of grant allocations to local government: for 2008-09, 2009-10 and 2010-11. The stability provided by multi-year settlements will allow local government to publish three-year council tax figures, and we would expect it to take up that opportunity. More widely, such security on funding will enable councils to move forward on providing more flexible, efficient and responsive services to their communities, as was set out in our October 2006 White Paper, "Strong and prosperous communities". It will facilitate the move towards new, more inclusive local area agreements that are tailored to meet the needs of individual areas and the drawing together of different stakeholders to provide better, more cost-effective services that seamlessly meet the needs of clients.
	Total revenue grants to English local authorities will be £65.7 billion in 2007-08, an increase over 2006-07 of £3.1 billion, or 4.9 per cent. Part of that increase is in specific grants, and it includes dedicated funding for schools and a further £525 million in neighbourhood renewal fund, allocating extra help to the 86 most deprived local authority areas in England. Within that total, formula grant will total £25.6 billion in 2007-08, an increase of 3.7 per cent. That means that by 2007-08, the increase in Government grant for local services since taking office will be 39 per cent. in real terms. The provisional standard multiplier for national non-domestic rates in 2007-08 will be 44.4p in the pound, and the small business non-domestic rating multiplier will be 44.1p. That means that, once again, businesses and other non-domestic users can look forward to predictable and stable rates.
	Grant floors—minimum guaranteed increases from one year to the next—are a permanent part of the system. I need to strike a balance between funding stability and the cost of the floor. This year, I am able to improve floor protection for fire and rescue authorities, while easing the impact of floors on upper-tier and shire district authorities. I can thus today confirm my proposal that, for 2007-08, the floors will be: for authorities with education and social services responsibilities, 2.7 per cent.; for police authorities, 3.6 per cent.; for fire and rescue authorities, 2.7 per cent.; and for shire district authorities, 2.7 per cent. Within each group of authorities, those above the floor will have their grant increase scaled back to pay for that floor.
	We have provided a stable and predictable funding basis for local services. We expect local government to respond positively as far as council tax is concerned. We thus expect to see an average council tax increase in England in 2007-08 of less than 5 per cent. We will not allow excessive council tax increases. We have used our reserve capping powers in previous years to deal with excessive increases and we will not hesitate to do so again if that proves necessary.
	I am also announcing consultation on alternative notional amounts for Devon and Somerset fire and rescue authority and Somerset county council. That will enable like-for-like comparisons to be made between 2006-07 and 2007-08 budget requirements for capping purposes. This is being issued today for consultation to ensure that, should the proposed merger go ahead for 2007-08, the relevant authorities will know, in advance of setting their budgets, the budget requirement figure for 2006-07 that the Government will use when considering using their capping powers.
	The supporting people programme has proved to be a highly successful one that has provided support to more than 1 million vulnerable people each year. In July, I announced almost £1.7 billion of investment in supporting people and I am pleased now to confirm the grant allocations for 2007-08. Additionally, I can announce a further £40 million of administration grant for authorities in 2007-08 to help them to manage that important programme. I am pleased to announce that if authorities generate savings under the programme through their careful management, they will be able to roll forward those savings from 2006-07 to 2007-08, in order to reinvest in the programme.
	The Government have provided another significant boost for local authorities, setting out a financial package that is stable, predictable and adequate to meet the pressures that local authorities face, but keeping council tax increases down to acceptable levels. I have placed copies of the tables showing grant allocations and copies of the supporting documentation in the Vote Office and the Library, and full details are being made available to local authorities on our website. I look forward to receiving consultation responses, and I commend the proposals to the House.

Eric Pickles: I thank the Minister for early sight of his statement and for the supporting documents. I have always considered the Minister for Local Government to be someone who respects the Chamber, so I am sorry that he chose to release the details of the settlement in a press release yesterday. Clearly, the spirit of Jo Moore lives on in his Department.
	Since 1997, council tax bills have rocketed. They have gone through the roof, rising by 84 per cent., and that takes the average bill for a band D property to £1,268 this year. A 5 per cent. rise this year will mean an extra £63 on the bill of a typical pensioner couple or a family, and that is equivalent to paying £111 every month of the year. What is the Minister's estimate of the extra burden on the vulnerable? I remember the deep shock felt by households when the average band D bill breached £1,000. It took seven years of this Labour Government for us to reach that oppressive figure. From the figures before us, we can calculate—I suppose that that is the advantage of multi-year financial planning—what bills will be by the end of Labour's third term, if there is a 5 per cent. annual increase. The average council tax bill will be £1,500.
	The Minister's last major adventure in capping resulted in nearly half the savings going on the cost of rebilling. Will he at least spare himself the embarrassment of capping authorities in cases in which the savings are trivial? Will he confirm that his capping powers will not be applied to the Olympic levy on council tax, and if costs continue to soar, as they did in Montreal, will Londoners be paying the Olympic tax for the next 30 years?
	We have long been promised the publication of Sir Michael Lyons's recommendations on local government finance, but a spokesman in the Department is reported in last week's  Municipal Journal as saying:
	"we have never made a commitment to publish the report at all".
	Will the Minister give a clear undertaking that the Government will publish Sir Michael's recommendations well in advance of the debate on this year's settlement? One of the key drivers for soaring council tax is the failure of the Government to finance fully the burdens that they impose on local councils from Whitehall. Will the Minister confirm that, on top of the figures given today, the Chancellor will look to meet a target of 3 per cent. cuts from local authority budgets?
	The finances of local authorities, particularly those with social services departments, are closely linked with the NHS. Across the country, local hospitals are cutting staff recruitment, abolishing posts and cancelling operations because their budgets are in the red. In July, the Local Government Association and the NHS Confederation published research revealing that seven out of 10 local authorities have been hit by cost-cutting pressures from the NHS. Are there any measures in the settlement to address that problem, or do the Government have their head in the sand, with regard to Labour's NHS cuts?
	The Chancellor has set in place a landfill tax escalator, and is making municipal waste collection ever more expensive. The costs should be funded under the "new burdens" principle, but the Department for Environment, Food and Rural Affairs argues that it does not apply, because of the "polluter pays" principle. What representations has the Minister made to remedy that injustice? In conclusion, no wonder the Minister thought that this was a good day to bary—bury—bad news. The bad news is that an ordinary family in an ordinary house face the prospect of paying a crippling £1,500 in council tax by the end of Labour's third term—truly, a shocking and crippling legacy.

Dennis Skinner: What did the hon. Gentleman mean by "Barrying Texas"?

Phil Woolas: I am grateful to my hon. Friend the Member for Bolsover (Mr. Skinner).
	I thank the hon. Member for Brentwood and Ongar (Mr. Pickles) for his comments about my attitude to the House, but I can assure him that the details of the statement were largely announced to the House last year, so there has not been a breach of privilege in the House. If there had been, I would take it very seriously. I thank the hon. Gentleman for his opening remarks but, in response to the questions that he asked, I specifically announced that the Government would not tolerate average tax increases above 5 per cent.—that is the same policy that I pursued last year. Last year, he attempted to portray that as an actual increase in everyone's council tax of 5 per cent. Of course, that was not the case this year, and it will not be the case next year. I accept his point that an advantage of multi-year statements is that we can predict council tax increases in future, but a disadvantage of that sensible policy from the Government's point of view is that the propaganda and spin that he put on the figures is made worse. Such a practice does nothing other than unnecessarily frighten particularly vulnerable people, so I urge him not to indulge in it.  [ Interruption. ] What was wrong about it was that the accusation was made last year. It was not true then, and it will not be true this year.
	The hon. Gentleman asked about the Olympics. The £20 levy for the Olympics, which has been agreed between the Government and the Mayor, cannot be changed without the agreement of the Mayor and the Greater London authority. The hon. Gentleman's party was supportive at the time of the bid, and the Prime Minister graciously said so. I accept that it is the job of Her Majesty's Opposition to oppose, but sometimes I think Her Majesty should ask for her money back because they have not provided value for money. The hon. Gentleman's worry about the Olympics is therefore not borne out. He asked an important question about the Lyons review, which is due to report to the Chancellor and the Secretary of State by the end of the year, and decisions will be made at that time. The hon. Gentleman described the 3 per cent. efficiency target as a cut—I assume that he was referring to the Gershon figure. Local government has a good record on efficiencies, both cashable and non-cashable, and I am pleased to report that our all-party work with the Local Government Association has resulted in improved efficiencies and services.
	The hon. Gentleman said that the NHS budgets are in the red, but the NHS budget has not been cut. NHS trusts and hospitals are required to balance their books, and it is amazing that the Opposition should fail to support the concept that public services should balance their books. Councils must do so—that is quite right—and most of them take a responsible attitude towards the requirement. The increasing work that they do through local partnerships, particularly the new financial arrangements of local area agreements, means that the aligning of financial budgets by the partners is important. The hon. Gentleman therefore made a significant point. As for his point about waste, my Department, the Department for Environment, Food and Rural Affairs and the LGA have important work streams on waste issues, which receive substantial attention in the White Paper that we published on 26 October. In giving a reaffirmation of the new burdens principle, I should point out to the House that those new burdens can only be calculated on a net basis, even though they are sometimes presented on a gross basis.

Nick Brown: I welcome my hon. Friend's statement. May I draw his attention to an anomaly that affects the city of Newcastle upon Tyne? The population figures that the Government use to calculate the city's entitlement to rate support grant seriously understate the real population of the city. This has been the case for a number of years, and the gap between the two figures is widening. Will my hon. Friend meet me and the other Members of Parliament for the city, and also perhaps the leader of the Liberal-controlled local authority and a representative from the opposition party in order to discuss the anomaly and see what can be done to rectify it?

Phil Woolas: Of course I would be delighted to meet my right hon. Friend, the leader of his council and any other representatives who wish to participate in a discussion of the issue. In the formula announcement that I made last December and confirmed in January, I changed the formula calculation to take into account population projections as well as historical trends, so there was a change in that direction. I am aware that his council and some others are raising the important matter of the population figures. The Government rely on the best data available, which are provided to us by the Office for National Statistics. The ONS constantly reviews the data and has a work stream through the population statistics working group to examine the matter. One can go only so far in future projections to be consistent with the overriding policy of financial stability and predictability.

Tom Brake: I commend the Minister for making the statement available much earlier than is usually the case. I congratulate the Government on moving to a three-year settlement, which will allow local authorities to plan much more effectively. However, it will not have escaped Members' attention that the Labour manifesto pledge back in 1997 to abolish universal and crude capping has still not been delivered. We do not have crude and universal capping. What we have is a benevolent Minister who reluctantly uses his reserve capping powers but achieves the same end, and our strong and prosperous communities still have to dance to his tune.
	The Minister neatly side-stepped the question from the hon. Member for Brentwood and Ongar (Mr. Pickles) about whether and when Sir Michael Lyons' report would be published. I hope he will answer that question on the record. In relation to the three-year settlements and picking up a point that has just been made, can the Minister confirm that those will be sufficiently flexible so that if a local authority experiences a swift change, such as inward migration, or if the census data prove to be inaccurate, it will be possible during that three-year period to adjust the settlement?
	On the 2007-08 announcement, does the Minister not accept that it is his settlement of 2.7 per cent. for many authorities, combined with public sector inflation and the financial impact on local authorities of the cuts in many primary care trusts and many acute trusts, that make inevitable an increase in council tax of double the rate of inflation, hitting the poorest—often our senior citizens—the hardest? Is it not time he stopped punishing local authorities? Instead, he should congratulate them on moving forward with the Gershon savings at a rate that central Government cannot match. He should introduce a local tax based on ability to pay, give local councils control of business rates, allow fair votes for local elections and scrap the hundreds of targets that are imposed on local authorities by his Government.

Phil Woolas: The 2.7 per cent. floor that the hon. Gentleman mentions benefits his own authority, which is a floor authority. Without the floor, there would be a significant shortfall, and the hon. Gentleman and his colleagues would no doubt lobby me for the floor. I therefore expect a letter of thanks for it, although I doubt whether that will be in the Christmas box for the Woolas office this Christmas.
	The Lyons report will be complete by the end of the year. [Hon. Members: "Will it be published?"] Of course it will be published. [Hon. Members: "When?"] The hon. Members for Brentwood and Ongar (Mr. Pickles) and for Carshalton and Wallington (Tom Brake) will have to be patient. That approach was used in the past with the Layfield review and other independent reports.
	The answer to the question about three-year settlements is yes, because the settlement takes into account the updated data.
	On council tax increases of twice the level of inflation, I repeat that the 5 per cent. figure to which I referred last year and this year is the national average, so it does not mean that council tax will rise by 5 per cent. in every authority. Council tax is set by individual local authorities, which has been the case since its introduction.
	On hitting the poorest hardest, the poorest benefit most from the council tax benefit system, which contributes just under 15 per cent. of total council tax revenues. That point is often missed out from the debate for what I assume are entirely honourable reasons.
	On the Gershon review, this morning I congratulated local authorities at the conference of the Chartered Institute of Public Finance and Accountancy on their success in reaching their Gershon targets a year early, and I am happy to repeat those congratulations.

Frank Field: If the new formula supporting social services had been fully implemented in this settlement, how much extra taxpayers' money would Wirral receive?

Phil Woolas: I am very grateful to my right hon. Friend for asking that important question. The funding blocks for children's social services and for young adult's social services come with floors, while the funding block for elderly social services does not. All the formula grant is covered by floors, and the floor for my right hon. Friend's authority is 2.7 per cent this year. Without that floor, I estimate that the loss to Wirral would be around £4 million. It is not possible to say—I am more than happy to clarify this matter in writing—what effect the removal of the floor would have on children's social services and on young adult's social services.

Nicholas Winterton: The Minister is a reasonable guy, and I like him. Will he give me an honest answer to this question? Cheshire is under-resourced in respect of education—it is one of the worst funded authorities in the country—and the same is true of social services. If the Government limit the money that they give to Cheshire, and if Cheshire cannot raise the level of local tax above 5 per cent. in order to provide the services that it requires, how can the local authority provide facilities for, in particular, the elderly and children, when it is under-resourced and limited on what it can raise itself?

Phil Woolas: I thank the hon. Gentleman for his comments, which I sincerely reciprocate—I genuinely thank him for what he has said. He has raised a difficult issue. Councils led by all political parties have identified that they face pressures, particularly in social care. We work with councils and their representatives to identify the causes of those pressures, and we work out with them, often successfully, what we can do together to address them. The plain fact of the matter is that the public—I am sure that the hon. Gentleman will back me on this point—will not tolerate excessive increases in taxes and particularly in council tax. The Government do not have a solution to the issue set out by the hon. Gentleman. We must square the circle through efficiencies, the improvement of services and better joint working with other public service agencies, which has resulted in significant improvements in Cheshire and elsewhere.

David Clelland: How can the Minister describe as a significant boost a settlement that gives a council such as Gateshead, which is often held up by Ministers as an example of good local government, 2.7 per cent.—some 30 per cent. below the English average—and that gives the north-east a settlement below the English average even though it is widely acknowledged that its needs are higher than that? Under this settlement, what prospect does Tyne and Wear passenger transport authority have of clawing back some of the £7.2 million that it cost us to introduce the Government's free travel scheme; and how on earth is it supposed to finance that scheme next year, given the inadequate system of local government finance?

Phil Woolas: I congratulate my hon. Friend on continuing his important campaign on behalf of bus users in Tyne and Wear. As he knows, the Government provided £350 million last year, and £367 million this year, for the concessionary fare scheme. In addition, there has been an uplift across the board in grants provided to local authorities. Having looked particularly at regional distribution, I can confirm to my hon. Friend that over the past 10 years the north-east has not been at the bottom of the league on a regional basis as regards the allocation of grant funding. We are in discussions with him about this important matter.

David Curry: The issue of social services is fundamental. The Minister will know that the Prime Minister and the Chancellor have just put together a document about the challenges facing the Government which highlights the problems that arise in a society in which the numbers of elderly people and young people are growing in proportion to the total population. Those are precisely the groups that make the most demands on social services, and where significantly higher statutory demands are laid upon local authorities and the most pressure from budgetary provision is felt. What forecast has the Minister made for the evolution of demand in that sector, and what plans does he have to meet it?

Phil Woolas: The right hon. Gentleman speaks with great authority and knowledge on these matters, and I believe that he understands the Government's argument, which is that we have provided extra revenue and capital support for social services—I could read out the substantial figures. The answer to his question is that the Government are proposing, through the White Paper, a partnership approach whereby local authorities are freed up to work more effectively with other partners, especially the health service. Spending on social services has increased year on year above inflation. That is not to say that there are not significant demographic and other pressures on councils and on central Government; that is why it is right and wise of my right hon. Friends the Chancellor and the Prime Minister to deal with that in their reviews.

Chris Mullin: What assessment has my hon. Friend made of the impact on local government finance of implementing the single status and equal pay Acts? I have gained the impression that his Department has been in denial about this for some time. Has he now woken up to the size of the problem, and what are his plans?

Phil Woolas: I can assure my hon. Friend that I am not in denial, and neither is my Department, about the importance of equal pay for equal value, not only in achieving equality and fairness for women workers, especially low-paid workers in local government, but in ensuring the balancing of the books on which we place such importance. Equal pay is very high on our agenda; indeed, this morning I held yet another substantive meeting with the Local Government Association to consider some of the potential solutions.

Paul Burstow: Will the Minister meet council leaders and Members of Parliament from the London borough of Sutton to discuss two matters: first, the effects of cost shunting from the local NHS on to local social services as a result of bed closures and cuts in staffing in the local NHS and tens of millions of pounds of cuts in primary care services; and secondly, the double disadvantage that the poorest of my constituents suffer as a result of not counting within the formula allocation and not benefiting from targeted grants because we are regarded as being a leafy suburb but in fact have pockets of deprivation that are not properly met by the grant system?

Phil Woolas: I shall be more than happy to look at the situation in the hon. Gentleman's borough, but I must point out again that our policy is a fair one. I acknowledge, as do the Government, that the point about pockets of poverty in relatively well-off areas is an important one. That is one reason why we apply the floors within the formula, of which his authority is a beneficiary.

Phyllis Starkey: While I welcome the stability of the two-year settlement and the fact that population projections will now be included, may I draw the Minister's attention to the problems faced by authorities such as Milton Keynes council, which has a rapidly increasing rate of population growth but is limited by the damping effect introduced to protect authorities affected by the floor? Will he allow representatives of the council to come with me to make representations to him on its specific problems as a housing growth area, and on the way in which that should be reflected in the formula?

Phil Woolas: I congratulate my hon. Friend on her persistent campaign to raise the issues affecting Milton Keynes, which she has acknowledged as being problems of success. This is a new issue that we have to deal with. I can assure her that the specific issues facing Milton Keynes are being considered, and that discussions are taking place on possible ways forward, not only for her area but for areas in a similar situation. I do not believe that this settlement specifically addresses the issue that she has raised, but I can give her the assurance that it is high on our agenda.

Philip Hollobone: As a councillor on Kettering borough council, may I draw the Minister's attention to the acute pressure on the planning departments in small district authorities, particularly in growth areas? Will he consider lifting the cap on the planning fees that developers have to pay? If a developer makes an application for 5,000 houses, that can occupy all the planning department's time, yet the recompense that it receives is totally inadequate.

Phil Woolas: I congratulate the hon. Gentleman on raising this issue, which we have debated before. He has made an important point in a non-partisan way on behalf of his constituency, and the Department is indeed looking into the matter.

Ann Coffey: My constituency is benefiting from £1.6 million of neighbourhood renewal funding. This is because super-output areas, rather than borough-wide statistics, have been used to target those resources. My constituency is in the relatively wealthy metropolitan borough of Stockport, as my hon. Friend the Minister knows. Will he increase the use of super-output areas to ensure that resources go to all deprived areas, irrespective of the council area in which they are located?

Phil Woolas: My hon. Friend makes an important point about super-output areas, which are the sub-ward areas of highest deprivation. I have announced today the allocation of neighbourhood renewal funding, and it is for the local authorities and their partners to allocate that funding to try to meet the floor targets on deprivation that we have set for them. The review of the neighbourhood renewal fund will take place in tandem with the comprehensive spending review, and the issue that my hon. Friend has raised is one of the subjects under consideration in that review.

Greg Hands: I want to return to the issue of population change, and to refer the Minister back to the Westminster Hall debate that he and I attended on 1 November. He said that he would write to me after that debate, but will he instead tell me today whether he will look again at the situation in local authorities such as my own, as well as in other London boroughs and places such as Peterborough and Slough? Apart from the change in the trend in population increase in such places, they have faced huge and sudden increases in population since the accession of the 10 new EU member states. Will he look again at the possibility of giving a gateway grant to such local authorities to deal with the one-off effects of those circumstances?

Phil Woolas: The hon. Gentleman referred to our fruitful debate on this issue in Westminster Hall. I cannot give him the commitment that he is looking for, however. The best data available to the Government are those produced by the Office for National Statistics, and I am obliged—as any Government would be—to use the best data. The work stream that is examining those data is ongoing, as his local authority and the others that he mentioned have requested.

David Anderson: My hon. Friend said in his statement that there would be no surprises for local authorities. Does he agree that his intervention last week in the negotiations on the local government pension scheme was a big surprise for local authority workers? He must have surprised not only the workers, probably scuppering the genuine negotiations, but the Prime Minister, who had said at the Dispatch Box 24 hours earlier that he would do all that he could to help to reach a successful outcome.

Phil Woolas: I am grateful to my hon. Friend for giving me the opportunity to put it on record that the statement issued last Thursday on the future of the local government pension scheme was influenced by discussions involving trade unions and employers, and that it refers to a consultation on the best way forward. On behalf of members of the scheme, and with regard to the viability of the scheme, I have an obligation to move forward in accordance with the timetable outlined to participants in the tripartite committee for some months and, indeed, years.

Mark Hunter: In town halls up and down the country, the Minister's statement today will have disappointed many people, not least because it represents a thoroughly bad deal for local government, which is struggling to provide the services that all our communities need and deserve. It seems to me that the Government are effectively asking councils—

Mr. Speaker: Order. When a statement is made, it is the practice in the House to put a question. The hon. Gentleman has so far not put a specific question. If he does so, I will allow him to continue.

Mark Hunter: As ever, Mr. Speaker, I am grateful for your guidance. I was just coming to the question. Given that the Government are asking local councils to do more and more with less and less, which services that local councils currently provide does the Minister think they no longer need to provide? Will he give us an answer, instead of giving councils more and more responsibilities to discharge with existing funds?

Phil Woolas: With respect, if the hon. Gentleman will give the House an undertaking not to distribute a  Focus leaflet attacking tax or council tax increases, I will give a straight answer to his question. The fact is that neither Her Majesty's Treasury nor the council tax payers in his constituency or mine are aware of the mystical tree on which he thinks money grows. Stockport borough council has had an average increase for 10 years of 4.5 per cent. in real terms. Admittedly, that includes the schools budget, but a real terms increase has been provided for other council services. Politics is about making those hard choices, for which he does not seem to think he should take responsibility.

Paddy Tipping: The need for a successful conclusion on the local government pension scheme has already been mentioned. Will my hon. Friend give a commitment that he will call in the employers and trade unions to see him, so that he can stress the need for further discussion and compromises on the way forward?

Phil Woolas: I am grateful to my hon. Friend, who plays a positive role on behalf of his constituents, particularly low-paid workers. I can give him that commitment. As I said a moment ago, the statement to the House refers to a consultation on the future of the local government pension scheme, and meetings are already in the diary to continue discussions on the future of that pension scheme, so that we can move forward with a strong final salary pension fund that is fair to scheme members now and in the future.

Brian Binley: The Minister will know of the problems faced by Northamptonshire county council, as he met an all-party delegation last year. He will know that we cut 600 full-time equivalent jobs, and that we cut deeply into services. This year, we have a £45 million shortfall on a balanced budget because of the support grant that he has announced, which we knew about last year. We can shave the employment structure to the bone, but we are still left with an £18 million shortfall that can only be dealt with by service reductions. How can the Minister reconcile that scenario with his claim that his party is improving local government services?

Phil Woolas: I am not the only one who says that local government services are improving. The independent Audit Commission and the Local Government Association say the same, backed up by independent research and evidence from respected market research companies and opinion pollsters. I am sorry that the hon. Gentleman chooses not to join me in congratulating local government, but I really cannot accept the argument that a shortfall on projected desirable expenditure is a cut. It is not, it never has been, and it never will be.

Neil Turner: I welcome the extra £525 million that has gone into the neighbourhood renewal fund. That money is extremely useful and, as I am sure my hon. Friend knows, the excellent Labour-led Wigan city council uses it very well.
	In his statement my hon. Friend made no mention of double damping, which was raised by my right hon. Friend the Member for Birkenhead (Mr. Field). I think most people would welcome damping, or at least understand the need for it; what we cannot understand is why there should be additional damping before the final damping in the formula.
	Replying to my right hon. Friend the Member for Birkenhead, my hon. Friend said that he could not assess how much the amount would be. The Wigan treasurer estimates that, for Wigan, it will be £8 million, as against the extra £4 million that we have. Will my hon. Friend give careful thought to the issue of double damping and try to resolve it, so that local authorities can address the needs of their social services departments?

Phil Woolas: My hon. Friend makes an important point. I will of course look at the specific figures relating to his authority and similar authorities that have presented the argument about double damping in a responsible way. As I tried to explain to my right hon. Friend the Member for Birkenhead (Mr. Field)—I am grateful to my hon. Friend for acknowledging this—the social services budget for the elderly is not damped, whereas the budget for children and young adults is. I have been able to make progress on the overall damping. Wigan city council, owing partly to a success on which I am happy to commend it, received a 3.9 per cent. increase this year.

Andrew Pelling: As the Minister turns his mind to the new three-year settlement, will he consider the position in Croydon? Comparisons with Ealing, which has similar social indicators, show Croydon's budget to be £40 million adrift of where it should be. What consideration can the Minister give to a fair deal for Croydon in future years?

Phil Woolas: I hoped that the hon. Gentleman would thank the Government for the local enterprise growth initiative funds that Croydon received this year. That excellent scheme, for which I commend the council, is working very well, but I do not accept the hon. Gentleman's premise. All local authorities can and do argue that they are special cases. We have to balance the demands on central Government funds. I believe that overall I have distributed the money fairly, and in a way that is perhaps more transparent than has been the case in recent years.

Jane Kennedy: When my hon. Friend decided that Liverpool city council should receive a 2.7 per cent. floor uplift, did he take into account a recent report by KPMG which suggests 43 ways in which the council could save money on the external contracts negotiated by its former chief executive Sir David Henshaw? One of them commits the council to a service charge of £11,000 a year per councillor, to be paid to a company called Liverpool Direct for computers supplied to councillors.
	Clearly more savings can be made in Liverpool. Will my hon. Friend examine the report to ensure that he and his officials know the background, and to ensure that Liverpool council tax payers receive the best services that can be provided from the significant resources that the council receives?

Phil Woolas: I, like my right hon. Friend, want the best for the council tax payers of Liverpool. I am grateful to her for raising the important point about the KPMG survey. Of course, in terms of the allocation of revenue support grant one cannot take into account such specific reports, but Liverpool is subject to the Gershon requirements, as are other authorities, and I would have thought that a consideration of that important report would be a contribution to that agenda in Liverpool.

Bob Neill: Does the Minister recall that he met with a delegation from the London borough of Bromley in June of this year, and does he accept that during that meeting he appeared to agree with its point that formula grant is only part of the picture and that we would not be able to come to a fair assessment of the treatment of Bromley or any other authority until a comprehensive list of all grant, including specific grant, is published for each local authority? Will the Minister undertake to do that, and what comfort will his settlement give to my constituents in Bromley, as it appears that their formula grant will be nailed to the floor for a fourth successive year?

Phil Woolas: I hope I am not being churlish or disrespectful, but I say again that it would be nice to get a thank you for the floor, especially as Bromley council is part of the London Councils Association which argued for the floor in the first place. But notwithstanding that, the point that the delegation made was on the pockets of poverty, which a Member has raised. What I have done is to make available all the specific grants that are within the remit of my Department and portfolio today. The Department for Education and Skills today also publishes the dedicated school budget for schools. Surety and predictability of funding are an important part of our policy, and next year I will be able to announce three years of funding.

Graham Stuart: Today's  East Riding Mail reports that the new East Riding of Yorkshire Primary Care Trust wishes to close the bedded units in Beverley, Driffield, Hornsea and Withernsea. Does the Minister accept that such financially driven cuts must be stopped, or else the consequences will be dire not only for patient's but for local authority budgets?

Phil Woolas: It is only proper for me to respond by saying that our public services have to balance the books. I do not think that the good people of east Yorkshire—of the beautiful market towns and other places that the hon. Gentleman mentioned—misunderstand the point that the Government are making when we say that there has been a real-terms increase in health expenditure in this country of 90 per cent. so far. I disagree with the idea that a trust or hospital that is balancing its books can be fairly described as making cuts; it is not doing that. The hon. Gentleman does his campaign no good by pretending otherwise. The public simply will not believe him when he says on the one hand that there are cuts, and on the other hand criticises the Government in other forums for allegedly overspending on public expenditure.

BILLS PRESENTED

Greater London Authority

Secretary Ruth Kelly, supported by the Prime Minister, Mr. Secretary Prescott, Mr. Chancellor of the Exchequer, Ms Secretary Hewitt, Secretary Tessa Jowell, Secretary David Miliband, Mr. Secretary Alexander, Yvette Cooper and Jim Fitzpatrick, presented a Bill to make further provision with respect to the Greater London Authority; to amend the Greater London Authority Act 1999; to make further provision with respect to the functional bodies, within the meaning of that Act, and the Museum of London; and for connected purposes: And the same was read the First time; and ordered to be read a Second time tomorrow, and to be printed. Explanatory notes to be printed [Bill 11].

Pensions

Mr. Secretary Hutton, supported by the Prime Minister, Mr. Secretary Prescott, Mr. Chancellor of the Exchequer, Mr. Jack Straw, Hilary Armstrong, Mr. Secretary Hain, Secretary Ruth Kelly, Mr. Secretary Alexander, James Purnell and Mr. James Plaskitt, presented a Bill to make provision about pensions and other benefits payable to persons in connection with bereavement or by reference to pensionable age; to make provision about the establishment and functions of the Personal Accounts Delivery Authority; and for connected purposes: And the same was read the First time; and ordered to be read a Second time tomorrow, and to be printed. Explanatory notes to be printed [Bill 12].

INVESTMENT EXCHANGES AND CLEARING HOUSES BILL  (ALLOCATION OF TIME)

Ordered,
	That the following provisions shall apply to the proceedings on the Investment Exchanges and Clearing Houses Bill—
	 Timetable
	1. Proceedings on Second Reading, in Committee, on consideration and on Third Reading shall be completed at this day's sitting and shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption or six hours after the commencement of proceedings on the Motion for this Order, whichever is the later.
	 Timing of proceedings and Questions to be put
	2. When the Bill has been read a second time—
	(a) it shall, notwithstanding Standing Order No. 63 (Committal of bills not subject to a programme order), stand committed to a Committee of the whole House without any question being put;
	(b) the Speaker shall leave the Chair whether or not notice of an Instruction has been given.
	3. On the conclusion of proceedings in Committee, the Chairman shall report the Bill to the House without putting any Question; and if the Bill is reported with amendments the House shall proceed to consider the Bill as amended without any Question being put.
	4. For the purpose of bringing any proceedings to a conclusion in accordance with paragraph 1, the Speaker or Chairman shall forthwith put the following Questions (but no others)—
	(a) any Question already proposed from the Chair;
	(b) any Question necessary to bring to a decision a Question so proposed;
	(c) the Question on any amendment moved or Motion made by a Minister of the Crown;
	(d) any other Question necessary for the disposal of the business to be concluded.
	5. On a Motion so made for a new Clause or a new Schedule, the Speaker or Chairman shall put only the Question that the Clause or Schedule be added to the Bill.
	 Consideration of Lords Amendments
	6. (1) Any Lords Amendments to the Bill shall be considered forthwith without any Question being put.
	(2) Proceedings on consideration of Lords Amendments shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.
	7. (1) This paragraph applies for the purpose of bringing any proceedings to a conclusion in accordance with paragraph 6.
	(2) The Speaker shall first put forthwith any Question already proposed from the Chair and not yet decided.
	(3) If that Question is for the amendment of a Lords Amendment the Speaker shall then put forthwith—
	(a) a single Question on any further Amendments to the Lords Amendment moved by a Minister of the Crown, and
	(b) the Question on any Motion made by a Minister of the Crown, That this House agrees or disagrees to the Lords Amendment or (as the case may be) the Lords Amendment as amended.
	(4) The Speaker shall then put forthwith—
	(a) a single Question on any Amendments moved by a Minister of the Crown to a Lords Amendment, and
	(b) the Question on any Motion made by a Minister of the Crown, That this House agrees or disagrees to the Lords Amendment or (as the case may be) to the Lords Amendment as amended.
	(5) The Speaker shall then put forthwith the Question on any Motion made by a Minister of the Crown, That this House disagrees to a Lords Amendment.
	(6) The Speaker shall then put forthwith the Question, That this House agrees to all the remaining Lords Amendments.
	(7) As soon as the House has agreed or disagreed to a Lords Amendment, or disposed of an Amendment relevant to a Lords Amendment which has been disagreed to, the Speaker shall put forthwith a single Question on any Amendments moved by a Minister of the Crown and relevant to the Lords Amendment.
	 Subsequent stages
	8. (1) Any further Message from the Lords on the Bill shall be considered forthwith without any Question being put.
	(2) Proceedings on any further Message from the Lords shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.
	9. (1) This paragraph applies for the purpose of bringing proceedings to a conclusion in accordance with paragraph 8.
	(2) The Speaker shall first put forthwith any Question which has been proposed from the Chair and not yet decided.
	(3) The Speaker shall then put forthwith the Question on any Motion made by a Minister of the Crown which is related to the Question already proposed from the Chair.
	(4) The Speaker shall then put forthwith the Question on any Motion made by a Minister of the Crown on or relevant to any of the remaining items in the Lords Message.
	(5) The Speaker shall then put forthwith the Question, That this House agrees with the Lords in all the remaining Lords Proposals.
	 Reasons Committee
	10. (1) The Speaker shall put forthwith the Question on any Motion made by a Minister of the Crown for the appointment, nomination and quorum of a Committee to draw up Reasons in relation to the Bill and the appointment of its Chairman.
	(2) A Committee appointed to draw up Reasons shall report before the conclusion of the sitting at which it is appointed.
	(3) Proceedings in the Committee shall, (so far as not previously concluded) be brought to a conclusion 30 minutes after their commencement.
	(4) For the purpose of bringing any proceedings to a conclusion in accordance with sub-paragraph (3) the Chairman shall—
	(a) first put forthwith any Question which has been proposed from the Chair but not yet decided, and
	(b) then put forthwith successively Questions on motions which may be made by a Minister of the Crown for assigning a Reason for disagreeing with the Lords in any of their Amendments.
	(5) The proceedings of the Committee shall be reported without any further Question being put.
	 Miscellaneous
	11. Paragraph (1) of Standing Order No. 15 (Exempted business) shall apply so far as necessary for the purposes of this Order.
	12. The proceedings on any Motion made by a Minister of the Crown for varying or supplementing the provisions of this Order shall, if not previously concluded, be brought to a conclusion one hour after commencement and paragraph (1) of Standing Order No. 15 shall apply to those proceedings.
	13. Standing Order No. 82 (Business Committee) shall not apply in relation to any proceedings to which this Order applies.
	14. No Motion shall be made, except by a Minister of the Crown, to alter the order in which any proceedings on the Bill are taken or to re-commit the Bill; and the Question on any such Motion shall be put forthwith.
	15. No dilatory Motion shall be made in relation to proceedings to which this Order applies except by a Minister of the Crown; and the Question on any such Motion shall be put forthwith.
	16. (1) This paragraph applies if—
	(a) a Motion for the Adjournment of the House under Standing Order No. 24 (Adjournment on specific and important matter that should have urgent consideration) has been stood over to seven o'clock, four o'clock or three o'clock (as the case may be), but
	(b) proceedings to which this Order applies have begun before then.
	(2) Proceedings on that Motion shall stand postponed until the conclusion of those proceedings.
	17. (1) This paragraph applies if a day on which the Bill has been set down to be taken as an Order of the Day is one to which a Motion for the Adjournment of the House under Standing Order No. 24 stands over from an earlier day.
	(2) The bringing to a conclusion of any proceedings on the Bill which, in accordance with this Order, are to be brought to a conclusion on that day shall be postponed for a period equal to the duration of the proceedings on that Motion.
	18. If the House is adjourned, or the sitting is suspended, before the conclusion of any proceedings to which this Order applies, no notice shall be required of a Motion made at the next sitting by a Minister of the Crown for varying or supplementing the provisions of this Order.
	19. Proceedings to which this Order applies shall not be interrupted under any Standing Order relating to the sittings of the House.
	20. (1) Any private business which has been set down for consideration at seven o'clock, four o'clock or three o'clock (as the case may be) on a day on which the Bill has been set down to be taken as an Order of the Day shall, instead of being considered as provided by Standing Orders, be considered at the conclusion of the proceedings on the Bill on that day.
	(2) Paragraph (1) of Standing Order No. 15 (Exempted business) shall apply to the private business for a period of three hours from the conclusion of the proceedings on the Bill, or, if those proceedings are concluded before the moment of interruption for a period equal to the time elapsing between seven o'clock, four o'clock or three o'clock (as the case may be) and the conclusion of those proceedings.— [Ed Balls]

Orders of the Day

Investment Exchanges and Clearing Houses Bill

Order for Second Reading read.

Edward Balls: I beg to move, That the Bill be now read a Second Time.
	I start by expressing my gratitude for the close co-operation that we have enjoyed in preparing today's Bill—from the shadow Minister, the hon. Member for Fareham (Mr. Hoban), from the hon. Member for Twickenham (Dr. Cable), from their spokesperson colleagues in the other place, and from other interested stakeholders across the City of London, particularly the recognised exchanges themselves, with whom we have been able to discuss the Bill in recent weeks. I hope that we can demonstrate today to the outside world that—perhaps unusually for this place—we have been able to reach a consensus in the national interest on the way forward on this important issue: both inside this House with Opposition Members, and outside it among practitioners in the City. I am also grateful for Members' co-operation in allowing us to move the Bill quickly through its Commons stages and detailed scrutiny this afternoon, in what are unusual circumstances.
	As Opposition and other Members will know, the Bill fulfils the commitment that I gave in a written statement to the House on 13 September to enhance the power of the Financial Services Authority to veto changes to the rules of UK-recognised investment exchanges and clearing houses where they are deemed disproportionate.

John Redwood: Why do we need a guillotine? This is about the first piece of Labour legislation that some of us actually want. It is sensible and there is agreement in all parts of the House—why can we not have an open debate, given that we want to get it through as much as the Minister does?

Edward Balls: I am grateful to the right hon. Gentleman for his intervention; hopefully, he will make a more substantive contribution in due course. I expect that there will be plenty of time in this debate for various points to be made by Members in all parts of the House. I very much look forward to the right hon. Gentleman's contribution; I hope that it will be as revealing and interesting as yesterday's was.
	My statement of 13 September was prompted by concerns about the potential implications of a possible takeover bid for the London stock exchange. At that time, a bid by NASDAQ, the US stock market, for the LSE was still only a possibility. As Members will know, NASDAQ has now announced an offer for the LSE, so with a bid on the table it is important that we move swiftly. Our aim, with the co-operation of both Houses, is for the Bill to gain Royal Assent as soon as possible, consistent with proper parliamentary scrutiny. With support from all parts of the House, it should be possible to achieve that before the NASDAQ bid reaches its important point.
	Before I turn to the Bill's detail, I want to set out the wider context. London today is widely seen as one of only two truly global financial centres in the world. It is the location for 70 per cent. of the global secondary bond market, for more than 40 per cent. of global derivatives, and for more than 40 per cent. of cross-border equities trading. London today has more foreign banks than any other financial centre, and it is the location for the headquarters of six of the world's 10 largest international law firms. Based on its global reach and its reputation for free, fair and open global markets, London has in recent years been attracting business and listings from around the world. We are determined to keep it that way.
	I believe that international businesses have located in the City because of four great strengths: our commitment to the rule of law and the highest professional standards; the skills and flexibility of the work force and our ability to attract talent from around the world; our long-standing tradition of openness and internationalism—a global approach to competition and ownership that has allowed the City to innovate and to respond to new challenges; and the FSA's highly respected principles-based and risk-based approach to regulation, which has been put in place over the past decade. I know that the whole House will join me today in paying tribute to the many men and women from across our country and abroad who work hard in the City and in our other UK financial services to build the City's reputation and to contribute to its strengths.
	However, we are not complacent. Back in May, when I first became the Minister responsible for such matters, concerns were expressed to me about the effects of a possible takeover of the London stock exchange by a company based outside the UK, and the threat that that might pose to London's attractiveness as a place for international listing and wider business. Some Members will know that the UK has for some years been open to overseas investment in UK exchanges. The London international financial futures and options exchange, ICE Futures and virt-x are all owned by overseas companies. Such overseas interest in UK exchanges in part reflects our principles-based approach to regulation, which has been flexible enough to accommodate the desire of exchanges to innovate in recent years, but rigorous enough to ensure the probity and integrity of our markets.
	However, following NASDAQ's interest in acquiring the LSE, I have discussed the implications of such a change in ownership widely in recent months, including with all the interested parties. I have made two points absolutely clear. First, the Government are neutral with respect to the nationality of the ownership of the LSE. It has been put to me that the right approach is Government intervention to protect the LSE from foreign ownership. I reject that argument. Such intervention would fly in the face of the traditions that have underpinned the City's success over the past 20 years. A policy of protecting "national champions" would damage, not bolster, the interests of London and the UK. So the Government do not have and will not express any views about the commercial merits of the proposed NASDAQ takeover. It is for the current owners of the shares to decide whether to accept or reject the offer. But secondly, our interest in the ownership of the LSE is that it should not affect the existing regulatory regime under which the exchange and its members and issuers operate. We are determined to act to protect our domestic regulatory environment, founded in both UK law and EC directives, that has made the City a magnet for international business. If a company operates in London, it should be regulated in London.
	Following those discussions, in which a range of possible approaches were put to the Government, we concluded that the only way to provide the assurance to London and the UK was through primary legislation, by making changes to part 18 of the Financial Services and Markets Act 2000, which provides for the recognition of investment exchanges and clearing houses.
	Let me turn to the detail of the Bill. The provisions will confer a new and specific power on the Financial Services Authority to veto rule changes proposed by UK- recognised investment exchanges and clearing houses that would have an excessive regulatory impact. By excessive we mean that the proposed rules would impose a regulatory burden on a user of the exchange or clearing house, or the wider community, that could not be justified by any regulatory benefits, or whose effect on those users or the wider community would be disproportionate—and obviously that would not include anything already required by UK or EU law.
	The new powers will not put the existing provisions for regulation of the investment exchanges and clearing houses into question. They will apply only to future changes. But they will apply to all UK-recognised investment exchanges and clearing houses from the outset, not just after there has been a change of control. They will apply to all recognised exchanges and clearing houses, not just those that are in foreign hands.
	The Bill also provides for necessary processes and safeguards. The exchanges and clearing houses will be required to notify proposed changes to their rules and other regulatory provision—by which I mean any guidance, policy, practice or arrangement made by an exchange or clearing house—to the FSA. The FSA will have up to 30 days to decide whether to call in a proposal for further examination. If it calls in the proposal, the FSA will have to set a period in which it will consult publicly about the proposed rule change. The FSA will then have a further 30 days after that consultation period has ended to decide whether to veto the proposed rule change.

John Redwood: What happens if the FSA decides that a proposed change is not burdensome and therefore takes no action, but many other people think that it is? Is there any right to take legal action against the FSA to try to get it to take action?

Edward Balls: Of course there is. In this area, as in others under the Financial Services and Markets Act 2000, the appropriate course would be to apply for judicial review of the FSA's decision. Given that that would probably be an exceptional event, an application for judicial review would be the best approach.

David Gauke: May I suggest a different set of circumstances. Let us say that the FSA decides to intervene in a change proposed by the LSE, and it decides to apply for judicial review of that decision. The FSA's regulatory objectives include the protection of consumers, but do not include the desirability of maintaining the competitive position of the UK—it merely has to have regard to that. The FSA could be vulnerable to having its decision overturned on those grounds.

Edward Balls: I am sure that we will deal with such matters in detail in Committee. Clause 1 writes into the Financial Services and Markets Act 2000 the power to block any regulatory decision by an exchange judged to be excessive and disproportionate and going beyond what is required for the proper functioning of that exchange. The Bill gives the FSA the power to block changes that would damage both its ability to regulate properly and proportionately and the competitiveness of the City of London. We have looked at the matter in detail, and we have judged that there is no need to include that clear intention in the Bill. Any attempt to do so would have given the impression that we were trying to narrow the FSA's powers unnecessarily.
	As I have said, we believe that the problem that the hon. Member for South-West Hertfordshire (Mr. Gauke) described will not arise, but it is important that any decision by the FSA is open to scrutiny. An exchange or clearing house will not be able to introduce the proposed change in regulatory provision until the initial 30-day period has expired without the FSA calling in the proposal, or until the FSA has confirmed that it will not be calling the proposal in, or until the FSA has stated that it will not be vetoing the proposal, or until the further 30-day period has expired without the FSA issuing a veto. If the FSA does then act, it will be open to the exchange to appeal to judicial review, as I have just made clear.
	In drawing up these clauses, we have been anxious to ensure that the procedures are not burdensome and disruptive for the investment exchanges and clearing houses. We have consulted all the main exchanges, and the trade association. We are aware of the concern that any unnecessary regulation could stifle innovation and impose extra costs for both the exchanges and the FSA. The exchanges and clearing houses have put to us their concerns that the procedures, if applied in a heavy-handed way, could damage their competitive position by reducing their flexibility to make and change their rules.
	We are determined that the new processes will not impose an unnecessary burden. The new power has always been intended to be a backstop; it was never intended to be a day-to-day supervisory tool for the FSA. We believe that the vast majority of changes to the exchanges' regulatory provisions and rules will not raise the sort of concern that the new power is intended to address. The fact is that many rule changes are routine and do not need to be subject to the type of scrutiny and processes that I have just outlined. The FSA will not be micro-managing the rule books of the exchanges and clearing houses.
	To make that clear, and following detailed consultation with the exchanges and the FSA, the Bill gives a power to the FSA to specify in its rules which types of change to regulatory provision need to be notified and which do not. That approach is consistent with the wider approach adopted in the Financial Services and Markets Act 2000, where more detailed working out is left to secondary legislation—that is, Treasury regulations or FSA rules.
	The exchanges accept that it will take time for the FSA to plan, discuss, devise and draft rules, to consult on those draft rules as it is required to, and then enact them.

Rob Marris: Proposed new subsection 300D(2)(c), at lines 19 and 20 on page 3 of the Bill, makes it clear that the FSA will specify a period in which representations can be made. No amendment is proposed to the provision, but the Bill does not specify a long-stop period in which the FSA must act. It has the initial 30-day period, and the 30 days at the end of the process, but the Bill does not limit the length of time that the FSA can devote to looking into a particular matter. Does my hon. Friend share my concern that matters could go into a sort of limbo as a result, and that the slowness of the FSA might be a burden on business?

Edward Balls: My hon. Friend helpfully, as always, raises exactly my point: it is important that the FSA takes the time to plan and discuss the precise details of the rule making, and I am sure that that is the approach it will take. I am keen to discuss my hon. Friend's particular point in detail. However, I am sure that Mr. Deputy Speaker agrees that it will probably be more appropriate to do that in Committee, so I look forward to my hon. Friend making the point again at that stage, if he can fit it into his busy schedule this afternoon, so that we can discuss it further.
	It is exactly to make sure that we get such things clarified that the FSA will consult on the rule book. That will take some months, so as we need to act with some urgency, and because it will take considerably more time for the FSA to hold those consultations on the detailed rules than we hope will be available before Royal Assent, the Bill gives the FSA the power in the meantime to grant waivers from the notification obligation to exchanges and clearing houses for the first 12 months after Royal Assent. That will enable the FSA to offer some comfort and flexibility to exchanges while it gets the detail of the rules in place—to respond to the point made by my hon. Friend.
	The provisions of the Bill are intended to come into force on the day after Royal Assent, so that once Parliament has decided that the new regime is to have effect, the policy intention of the Bill cannot be undermined by precipitate rule changes between Royal Assent and commencement. I am sure that the House will be pleased to hear that the FSA has already started to work with exchanges and clearing houses on the formulation of the waivers. Indeed, the FSA has written to me today—copies of the letter have been deposited in the Library and passed to Opposition Members—to confirm its intention to use that power only if it is justified as proportionate and if the benefits of doing so exceed the costs, and only after consultation.

Mark Field: I appreciate that the FSA regime is somewhat different from that which applies, for example, in Wall street or Tokyo, but does the Minister have any evidence that in other major international exchanges where similar issues might arise a similar regime has been adopted to try to give protection from disproportionate actions elsewhere?

Edward Balls: The hon. Gentleman makes an important observation. The answer is no, not in our experience. I do not think that any other financial centre has such an open and global market for ownership and exchanges, as well as a regulatory regime that its authorities are so keen to protect. There is something particular about not only our open approach, but our regulatory regime, which means that we are keen simultaneously to allow ownership changes if shareholders desire them and to retain that back-stop power.
	As I said, in the recent consultations, we considered the type of thing we could do; for example, issues arise in the case of the proposed, or rumoured, New York stock exchange takeover of Euronext, which would have implications for London, owing to Euronext's ownership of LIFFE—the London International Financial Futures and Options Exchange—although regulatory issues do not arise in quite the same way. We looked at the corporate governance changes that were being proposed and discussed with authorities in other European capitals and concluded that those arrangements would not give us sufficient comfort. As we looked around the world, and at past experience, we concluded that as no model would give us comfort, other than taking power directly in law, that was the appropriate thing to do. However, it is my understanding that there is no precedent for what we are proposing.
	After the detailed scrutiny of the Bill on which we are about to embark, I hope that Members will conclude that the guiding principles I set out earlier are being fully respected in the legislation. First, the principle that we should be blind to ownership of exchanges is being protected; we are entrenching London's reputation as a global financial centre determined to attract talent and ownership from around the world. Nothing in the legislation has any consequence for the nationality of the ownership of UK exchanges. It will make overseas ownership neither easier nor more difficult and I am confident that any potential foreign investor who wants to come to the UK will not be deterred. We are also upholding the principle that it is right for the Government to act to protect and enhance the UK's proportionate and risk-based regulatory regime.
	I believe that the Bill will deliver that objective and can do so without imposing unnecessary regulatory burdens on the exchanges. Yes, we are intervening. However, we are intervening and legislating not to impose regulation, but to avoid excessive regulation being imported into the UK. By outlawing the imposition of any rules that might endanger the proportionate and risk-based regulatory regime that underpins the City's success, I believe that we will help to ensure that London continues to be a magnet for international business and new listings from around the world. The Bill will therefore continue to bring new investment and new jobs to the UK, so I commend it to the House.

Mark Hoban: First, let me make it clear that we support the Bill. Indeed, there is widespread support for it across the financial services sector and few measures on financial regulation have gained the support of so many interested parties. We have sought to co-operate with the Government to ensure that the Bill receives a swift passage through the House today. We recognise the importance of the timing and want to place on the record our acknowledgement of the spirit of co-operation between the Government and Opposition Front Benchers in a rare outbreak of consensus and working together. It could be said that a similar spirit of consensus was not the hallmark of yesterday's debate.
	We welcome the powers given to the Financial Services Authority to veto changes to the rule books of exchanges, particularly where they are seen to be excessive. As the Economic Secretary said, the Bill is before us because of widespread concern that acquisition of the London stock exchange could lead to changes in its rule books that could damage the competitiveness of UK capital markets. If a US exchange were to acquire the London stock exchange, US regulations—especially Sarbanes-Oxley—would be imposed on UK-listed companies.

Andrew Love: Does the hon. Gentleman accept that there is concern about regulation not only in London but in the US? Although that concern may not have reached up to Congress, it is actively discussed in New York and in markets throughout the US.

Mark Hoban: The hon. Gentleman is right about concern in the US, which is widespread. Hank Paulson, the US Treasury Secretary, has made a number of speeches on the theme, so although the issue may not yet have reached Congress, it is certainly important in the higher ranks of the US Treasury. In some of my discussions with UK institutions, I have found that the most vociferous opposition to extraterritoriality has come from some of the US banks, which recognise themselves in discussions of the problems caused by disproportionate regulation.
	The Bill deals with one aspect of extraterritoriality in the regulation of financial services. In recent years, there have been other instances of regulators seeking to impose their rules on businesses operating outside their jurisdictions, thus eroding the competitive advantage that one market has by doing things differently and countering any such benefit. The consequence has been to impose additional costs on businesses and try to erode the advantages of the light-touch, principles-based, risk-driven approach, which has been the cornerstone of the success of the UK financial services sector.

Rob Marris: I understand where the hon. Gentleman is going, but may I suggest the other side of the coin? Shareholders in a recognised body might be concerned if they could not tighten their own rules to protect the solvency of their organisation because such tightening would fall foul of the legislation. The Bill might deem it excessive, because it would not be required under UK or Community law. Thus, if an organisation wanted to take action internally to protect itself and its shareholders, it might not be allowed to do so.

Mark Hoban: The hon. Gentleman raises a quite complex point. We need to establish what constitutes the right balance of protection and I believe that the Bill makes important moves in seeking to ensure that we protect one of this country's vital assets: the regulatory environment of the UK financial services sector.
	A recent report by the City of London corporation highlighted that the strength of the regulatory environment in the UK was one of the most important success factors in determining the strength of the City. We should also make it clear that such strength comes from getting the level of regulation right too. There is a balance to be struck between over-regulation that imposes additional costs on businesses and under-regulation that damages confidence in the market. Moving one way or the other can harm the financial services sector.
	The current strength of the UK capital markets is partly a result of the regulatory arbitrage between the UK and the US, as a consequence of the Sarbanes-Oxley legislation. Reflecting on the point made by the hon. Member for Edmonton (Mr. Love), I suspect that the existence of regulatory arbitrage will come under threat as the US wakes up to the consequences of the Sarbanes-Oxley legislation. We cannot rely for ever on the existence of such regulatory arbitrage to promote and allow UK financial markets to grow. We need to ensure in that aspect, as in every other, that we keep the regulatory structure under review, so that we continue to achieve the right balance.

Andrew Love: The historical examples may not bear out the point that the hon. Gentleman is making. I agree that it would be sensible for the US authorities to adopt such an approach, but looking back to the Eurobond fiasco of some time ago, the US took so long to wake up that it lost the business.

Mark Hoban: Indeed, the hon. Gentleman makes a fair point, but I hope that regulators and legislators learn those lessons. Effective light-touch, risk-based and principles-based regulation is in the interests of the sector globally, and the Government need to send that message more strongly to the US Administration and Congress, so that we ensure that the arguments in favour of the UK regulatory regime are put and understood in Washington.
	I shall give some examples of how extraterritoriality imposes additional burdens on businesses. Under the Sarbanes-Oxley legislation, the US Public Company Accounting Oversight Board is required to report on foreign auditors with US-listed clients. It has recently exercised those powers by reviewing audits undertaken by Ernst and Young in the UK. Of course, UK auditors are already subject to audit inspection arrangements, so in a sense the additional review by the board imposes an additional cost on UK auditors. In effect, those costs will be borne by their clients in one form or another.
	The regulatory overlap that arises from extraterritoriality is a problem, but it is not the only one: the situation has arisen with hedge funds when their management is based in the UK. The Securities and Exchange Commission has sought to regulate hedge funds by reference to the location of the hedge fund investor. The SEC has gone to some lengths to try to draw UK-based hedge fund managers into its remit.
	The SEC requires firms with more than 13 clients to register with it, but it has looked beyond simply the number of direct investors to the next layer down. For example, a UK-based hedge fund could have, say, 10 investors—below the SEC limit—but if they each had 10 investors, the SEC would say that the hedge fund had 100 investors and it would be drawn into the net. So there is a continuing push from the SEC to draw more activities based outside the US into its remit, with the consequence of imposing additional regulatory burdens on those funds. Although the Bill tackles an aspect of extraterritoriality, we should be under no illusion that it deals with the issue in its entirety.

John Redwood: Does my hon. Friend agree that, if sensibly interpreted, the Bill is a bit of a first? It provides some kind of deregulatory ratchet, instead of a regulatory ratchet, which we have had so often in so many areas. It cannot just target one possible overseas buyer of the stock exchange and one possible overseas source of extra regulation. It has to target all of that. So as exchanges renew their regulations, there will be a gentle deregulatory pressure, which seems admirable.

Mark Hoban: I am grateful to my right hon. Friend for making that point. There is a great deal in what he says, because there will be an inherent bias in the Bill to look at how exchanges reviewing their rule books might lead to the introduction of more onerous regulations, affecting the competitiveness of those exchanges. There is a benefit there. It is a slightly curious irony that the Bill makes a small extension of regulation in order to protect the light-touch regulation that we see at the moment and to entrench it still further.

Edward Balls: On that point, does the hon. Gentleman agree that, in order to make sure that we keep that deregulatory pressure on all exchanges, there is merit in the provision applying to all new rules and all existing exchanges regulated in London, and not simply to exchanges where there has been a change in governance?

Mark Hoban: Indeed, although the Minister is in danger of trespassing on the detailed scrutiny of the Bill in Committee. I have tabled a probing amendment to that effect, to elicit from him his thought process. He makes an important point. There is an issue in that the current ownership regime of all exchanges has not created a problem to date. Some may believe that these changes should be triggered only on a change of control. It is important that, in Committee, we flesh that out still further.
	Let me turn to the background to the Bill and the importance of the measure. The global nature of international capital markets means that businesses looking to raise money can choose where they go to raise it. Historically, international businesses have looked principally to New York to do so, but, following the introduction of the Sarbanes-Oxley legislation in the aftermath of the WorldCom and Enron scandals, international businesses have found the regulatory burden in the US too onerous and sought to raise capital in the UK. As a consequence, we have seen an increase in the number of initial public offerings in London and the amount of capital raised. It was announced earlier this month that £22.3 billion of funds has been raised on the London stock exchange so far this year, which exceeds the amount raised on other exchanges.
	We have seen a significant benefit to the UK from Sarbanes-Oxley and the impact of that regulation, and not just in terms of fees for merchant banks and issuers. There are also the accountancy and legal services. A whole range of people have benefited from the fallout from excessive regulation in the US. A recent study indicated why firms were coming to raise money in the UK. It said that the cost of capital at both the initial public offering stage and afterwards is lower in London than in other major European or US financial centres. The report, commissioned by the City of London corporation and the London stock exchange, found that London markets are cheaper than both the New York stock exchange and NASDAQ with respect to both underwriting fees and other direct IPO costs. Other direct IPO costs, including legal and accounting costs, are lower in London than in the US largely due to the fact that in the US one needs to comply with Sarbanes-Oxley.
	It is interesting that, despite the additional costs associated with US listing, the report found no evidence that Sarbanes-Oxley has delivered any significant regulatory benefits not already available under the UK corporate governance regime. That indicates an area where regulation has not improved the protection available to consumers. In the US, those involved are bearing the costs without seeing any great regulatory benefit.
	The unpopularity of US markets and the increasing popularity of UK and European markets has led to US exchanges looking abroad to strengthen their business. It led to the New York stock exchange seeking to acquire Euronext and to the NASDAQ bid for the stock exchange. The commercial logic of that is that the US exchanges would like to benefit from the success of effectively regulated markets in the UK and Europe. Indeed, we should be clear in acknowledging that it is not in the economic interest of potential acquirers of UK and European exchanges for the Securities and Exchange Commission to be in a position to exert pressure to enable US regulations to be imported into the UK and Europe. If such regulations were brought in, there would be a risk that IPOs would move from Europe to Asia and other markets, with money thus flowing out of the UK and Europe. That explains why acquirers have an interest in the legislation going ahead in the UK.
	In meetings that my hon. Friends and I have had with institutions across the City, it has become clear that businesses are worried that the takeover of the London stock exchange could lead to the City losing its competitive advantage over US capital markets. We need to be clear that the Bill has nothing to do with economic nationalism or the protection of national institutions. It would be wrong for any country to use the Bill to defend its protectionist policies. We have thrived as an economy because we have open markets and enable foreign companies to buy UK assets. Indeed, that has been one of the factors behind the strength of the UK financial services market. The Bill is really answering the question of how we can best protect the regulatory advantage that we have at the moment.
	In reply to an intervention made by the hon. Member for Edmonton (Mr. Love), I said that US houses had been more vociferous than others about the risk of Sarbanes-Oxley being applied in the UK, but it is not just US houses making such comments. In March, Angela Knight—she was then at the Association of Private Client Investment Managers and Stockbrokers, but is now at the British Bankers Association—said:
	"What we need is a copper-bottomed guarantee that whatever framework is put into place we continue to trade and settle here, be governed by British law and be regulated by the FSA ... Otherwise, the SEC believes very strongly in extra-territorial activities, and because NASDAQ and the NYSE are American they will find it difficult to resist".
	The Bill will achieve a single goal: to enable the ownership of not just the LSE but other exchanges to change without having a detrimental impact on the competitiveness of UK capital markets.
	As the Minister said, the Bill gives the Financial Services Authority the power to veto changes to the rule book not just of the LSE, but of all UK recognised investment exchanges and clearing houses. Those powers are new. At the moment, exchanges in London have the freedom to set their own rules, subject to meeting certain recognition criteria. My hon. Friend the Member for Cities of London and Westminster (Mr. Field) asked the Minister whether there is a parallel with that elsewhere. I understand that many other regulators regulate the detail of rule books to a greater extent than the FSA has hitherto been able to do. Enabling the FSA to consider rule changes and the rule books of new exchanges is a significant change for London. Although the measure represents an extension of the FSA's regulatory power, it is an attempt to entrench our present advantage and, as my right hon. Friend the Member for Wokingham (Mr. Redwood) said, to introduce a deregulatory ratchet.
	One of the concerns about the Bill that has been expressed by several people is the extent to which the FSA will seek to look at individual rules. The FSA will need to minimise the additional compliance burden on exchanges without creating the opportunity for exchanges to impose unchecked rules that make UK markets less competitive. I welcome the letter that the Economic Secretary received from John Tiner today about the FSA's recognition of that.
	The Bill's regulatory impact assessment reinforces the point about looking at relatively few changes to rules. It gives an upbeat assessment of the impact of the Bill, suggesting that of the estimated 1,000 rule changes a year, there would be only about 25 notifications, of which only one would be called in. On that basis, the RIA suggested that the measure would have a relatively low cost. I suggest that when the FSA considers regulations during the 12-month grace period before it must introduce detailed regulations, it should look at the type of rule changes made in the past, so that it understands what it would call in, because it is important for it to understand what is likely to happen in practice. We should continue to monitor the detailed regulations once they are applied to make sure that we are not calling in too many regulations, and imposing too many costs on exchanges and clearing houses in the UK.
	The Bill sets out the framework within which the powers can be exercised. It is carefully worded, and it assumes that any rule required under EU or Community law is not excessive—a point that some in the industry might question, but I leave the matter at that. The Bill does not prevent the exchanges from ignoring excessive regulations that come from Brussels. It sets out the four criteria that should be considered in determining whether requirements are excessive. The first is the effect of existing legal and other requirements. The second is the global character of financial services and markets, and international mobility of activity. The third is the desirability of facilitating innovation, and the fourth is the impact of the proposed provision on market confidence.

Rob Marris: On the framework, is the hon. Gentleman surprised that shareholder protection or consumer protection are not included in the factors to which he referred?

Mark Hoban: The hon. Gentleman raises a point about the context in which the Bill should be considered. Of course, the FSA has other powers relating to consumer protection, which is one of its regulatory objectives. The Bill deals with the regulations that apply to shares traded on exchanges, so I do not think that issues of shareholder protection come within its remit. There are measures in the UK listing rules that cover shareholder protection, too. The Bill is narrowly focused; it is more a rapier-like thrust than a clunking fist when it comes to tackling regulation, and we should keep it like that, rather than use it as a Christmas tree from which to dangle ever more baubles, although I may be in danger of mixing my metaphors.

Rob Marris: Perhaps I did not make clear what I sought to tease out from the hon. Gentleman. A body might wish to increase consumer protection or shareholder protection by tightening its rules, but that does not come within the framework of the Bill, so that tightening could well be seen as "excessive" under the definition in the Bill. That is the issue that I wished to raise.

Mark Hoban: The hon. Gentleman is trying to make an important point. He is trying to find out whether there is any opportunity under the Bill for a Sarbanes-Oxley measure to be introduced, but I hope that it will not enable such a provision to be made. He should remember that although the conditions that I mentioned are in place the FSA seeks to ensure that regulation is proportionate and not excessive in its impact—so there is not leeway, exactly, but a wider context for such considerations.

David Gauke: On whether a requirement is excessive, proposed new section 300A(3) includes a test of whether something is
	"required under Community law or...law in the United Kingdom" ,
	and a second test, which is whether the requirement
	"is not justified as pursuing a reasonable regulatory objective".
	One "reasonable regulatory objective" is the aim of protecting consumers, so I do not take the point made by the hon. Member for Wolverhampton, South-West (Rob Marris), as that aim can be pursued under that heading. As long as the requirement is not
	"disproportionate to the end to be achieved",
	it would not be excessive.

Mark Hoban: Indeed. My hon. Friend has practised in that area of law, and he demonstrates his knowledge and understanding of the subject, and of the way in which the Bill will interact with the Financial Services and Markets Act 2000. The hon. Member for Wolverhampton, South-West (Rob Marris) is in danger of leading us up a blind alley.

John Redwood: The suggestion made by the hon. Member for Wolverhampton, South-West (Rob Marris) is dangerous, because if too many of those provisions were added to the legislation, Sarbanes-Oxley would indeed be legal in Britain and it would be used as a reason for excessive regulation.

Mark Hoban: My right hon. Friend is quite right. The narrow focus of the Bill and the way in which it has been drafted have received widespread support from the financial services sector and from trade bodies, because they seek to prevent that very thing from happening. If the wording were wider, more permissive and less restrictive, it would not necessarily command consensus, because it would not address the threat that UK financial services institutions attach to the imposition of extra-territorial jurisdiction in that area.

Andrew Love: Surely the important factor is that scandals such as those involving Enron and WorldCom have not taken place in the UK, presumably because of the proportionate regulatory environment. When Parliament passes the legislation, it must provide reassurance that sufficient protection is available to prevent similar scandals.

Mark Hoban: The hon. Gentleman is right that those things did not happen in the UK. We did not suffer from the extensive financial scandals that afflicted US markets, partly because of the strength of UK regulation. A principles-based approach to regulation, with an emphasis on risk, puts in place the right framework to prevent the reoccurrence of those scandals. Too often, financial scandals arise because of a prescriptive, rules-based approach that requires people to tick boxes. We must therefore learn lessons from the American experience, and we must be careful not to repeat the mistakes that were made in the US in the past.
	May I turn to the four conditions set out in proposed section 300A? People using the Bill must have a clear understanding of its import, and the purpose of the provision is to maintain the competitive advantage of the UK financial services sector relative to other global markets. We must look carefully in Committee at the language of proposed subsection (4)(b) to make sure that that message is clearly conveyed to people who are interested in regulation in the UK. The hon. Member for Wolverhampton, South-West asked the Minister about the lack of a backstop date in proposed section 300D. I am sure that, after consulting stakeholders, the Financial Services Authority will suggest an appropriate date. However, will the Minister or the Financial Secretary confirm that the FSA believes that the 30-day period in which it may deliberate on the changes is sufficient to consider fully the impact of any rule changes? Returning to the collapse of Enron and WorldCom, how long would it have taken people to discern the long-term damage that Sarbanes-Oxley would have inflicted if it had been introduced in UK capital markets? It is therefore important that we make sure that there is sufficient time for the FSA to consider fully the impact of any rule changes.
	In conclusion, Sarbanes-Oxley has provided a great boost for the City, as US markets recognise, which is why, from Hank Paulson downwards, there has been pressure to water down the provision. It should be a warning to the Government and to Governments across Europe that while one piece of legislation can strengthen our competitive position, another can seriously damage it. We must pay great attention to the conditions that make the UK financial services sector a great success. It is not just about regulation—it is about the people and businesses based here, the tax system, infrastructure and many other factors. If the UK is to thrive, we must look at what we can do ourselves to ensure that it remains globally competitive in the financial services sector, rather than relying on others to make mistakes from which we can benefit.
	The Bill gives the FSA the power to protect the competitive position of our capital markets, but as the provisions indicate, it cannot protect exchanges and clearing houses from excessive regulations imposed here in Westminster or in Brussels. Although it protects UK capital markets from one aspect of extra-territoriality, it does not protect them from all aspects. We welcome the Bill and hope that it will be effective, but we do not see it as the end of the story when it comes to maintaining the competitiveness of the UK financial services sector.

Kerry McCarthy: I am pleased to have the opportunity to speak in the debate. I welcome my hon. Friend the Minister's opening remarks, which confirm that the Bill is intended not to impose additional regulatory burdens on the City, but to protect the light-touch system of regulation that has served the City so well since we set up the Financial Services Authority.
	I also welcome my hon. Friend's reaffirmation that the Government recognise that the City's strength lies not just in its sensitive and light-touch approach to regulation, but in its internationalism and receptiveness to outside influences and outside investment. I am pleased to hear confirmation that the Bill is not intended to restrict foreign ownership of our recognised exchanges and clearing houses, that the Government are neutral on the matter and will remain neutral, and that the Bill is intended to safeguard the risk-based, principles-based approach that has made London such an attractive place for international financial institutions to do business, and its exchanges such a magnet for listings from around the world.
	Far from imposing a new burden, the Bill will, by giving the FSA what I am sure will be a judiciously exercised power of veto, ensure that excessive, disproportionate or unnecessary regulation is not permitted. I am also pleased to hear the Minister confirm that the Bill is not about micro-managing the exchanges, and that safeguards will be built into it so that the FSA can allow exchanges to make minor changes to their rules without interference.
	Many reasons have been advanced for the City's position as one of the world's two most successful financial centres—some would say the most successful. Such factors include the English language, our geographical position between the US and Asian time frames, our skilled work force, and the attractions of London as a place in which to live and do business. But the Bill encapsulates the two main reasons for London's success: its internationalism and its approach to regulation.
	Britain has always been ahead of the pack as far as globalisation is concerned. Its financial sector has for 300 years or more been internationally focused and outward looking. Unlike other financial centres that developed primarily to serve their own domestic markets, the City's phenomenal growth has been due to its role in financing world trade, rather than financing our indigenous industries. Indeed, as Professor Anthony Hopkins said, the industrial revolution happened independently of the City of London.
	In the past three decades or more, since the collapse of Bretton Woods, London has prospered as a financial centre not just by capitalising on its traditional strengths, but by embracing liberalisation and exploiting the advantage offered it by protectionist or fiscally restrictive regimes in other financial centres. We have spoken a great deal today about Sarbanes-Oxley, but in the 1970s the London Eurobond market flourished because of decisions taken in the USA.
	In 1979, the scrapping of exchange controls by the Thatcher Government freed up the flow of capital in and out of the country, removing a key obstacle to globalisation and cementing the City's position as an international hub. Big bang, 20 years ago last month, changed the City for ever, by relaxing the rules preventing foreign ownership of British financial institutions and leading to an influx of overseas investment. Of course, there has always been a foreign element in the City. The names of what we would regard as some of the most traditional City institutions, such as Rothschild's, Warburg's, and Kleinwort Benson, make it clear that they were established by immigrants, and they have now been taken over by yet more foreigners coming in.
	With big bang we saw what is commonly dubbed the "Wimbledonisation" of the City—that is, its domination by foreign players. In particular, US banks, prohibited by Glass-Steagall from owning US securities houses, took the opportunity to move into London in force, and provided the City with capital for almost unlimited expansion.
	This all means that London is now a truly international financial centre, handling foreign transactions worth £560 billion a day. It is the place where more international mergers and takeovers are arranged than anywhere else, and more cross-border transactions take place than anywhere else. It has the biggest foreign exchange, swaps and international insurance and reinsurance markets in the world. The City has more foreign banks than any other financial centre—264 at the last count. It has almost a third of the daily turnover in the world foreign exchange market. It has over 40 per cent. of the world's OTC derivatives trade, 70 per cent. of the Eurobond market, 40 per cent. of the world's turnover in foreign-listed equities trading, and the fastest-growing share, currently 20 per cent., of global hedge fund assets. It has taken a long time to establish a regulatory system which can cope with that new order. Most people accept that the fragmented, predominantly self-regulatory regime established at the time of big bang was a messy compromise that ended in failure.
	If we look back at the 1980s and the early 1990s, we can all recite a litany of City failures and scandals—Johnson Matthey, British and Commonwealth bank; Bank of Credit and Commerce International, Barlowe Clowes, Lloyds of London, Brent Walker, the Guinness affair, the Blue Arrow affair, Roger Levitt, Asil Nadir and Polly Peck, Maxwell and the Mirror Group pension funds, and, of course, Nick Leeson and the ignominious downfall of Barings bank.
	At the time of the Barings collapse, I was employed in Abbey National's treasury division. At the time, Abbey National had a derivatives trading joint venture with Barings, which, I suspect, it would not care to remind people about these days—I hasten to add that it had nothing to do with Barings futures trading activities in Singapore. I was called into the Barings head office in London on the Sunday when Barings went under to help to sort out the mess with the Bank of England and the chief executives of the top UK banks. I remember that day well, because it was the day of my constituency Labour party's annual general meeting. I was chair of my constituency at the time and had to give my apologies, which raised more than a few eyebrows among my comrades in Luton, North Labour party, who until then had no idea what I did for a living. I am glad to say that the Labour party has come a long way since then.
	Barings management did not know what its traders were up to, the regulators did not know that the management did not know what the traders were up to, and the Government certainly did not know that the regulators did not know that the management did not know what its traders were up to. The old boy network comprehensively failed. It may be tempting fate to say that I do not think that such a scenario could happen now. Of course we should never be complacent, but the Financial Services Authority and the relationship between the Government and the regulators inspire a great deal more confidence now.

John Redwood: Surely the hon. Lady is experienced enough to know that there is no regulatory system in the world that is proof against all fools, knaves and crooks—so it is completely silly to say that there will never be a collapse in Britain again. We must accept that that will happen in the future.

Kerry McCarthy: As I said, we should never be complacent.
	It is easy to portray the Barings situation as the consequence of one rogue trader acting in a criminal way. If one examines the matter closely, however, there was a systemic failure throughout the management and the regulatory system, and people simply did not understand the risks that the bank was taking. I am a member of the Treasury Committee, which has discussed with the FSA how it regulates matters such as hedge funds and the current risk-based system of assessment. I am confident that the FSA appreciates what the banks that operate out of the UK are doing, what sort of business they are engaged in and what risks are associated with it.  [ Interruption. ] Farepak does not come under the FSA, although perhaps that is a subject for future debate.
	The UK approach is widely seen as the best in the world, and it underpins London's success as a modern international financial centre. It is important that we preserve that approach, which is the essence of the Bill. While we are debating how we regulate our financial markets and City institutions, I want to restate why, while we should aim to achieve a degree of harmonisation and a level playing field across the European Union—and, indeed, further afield—it must never be at the expense of our international competitiveness.
	London has a comparative advantage in financial services, and if other countries want to compete with us they should do so by raising their game to our level, not by seeking to hold us back with inflexible, over-burdensome, gold-plated regulation. A one-size-fits-all approach in a new enlarged European Union is unlikely to be to London's advantage, and we should resist attempts to force us down that path. However, we should do so not through withdrawal and seeking to isolate and disassociate ourselves from our European partners, as I have heard the right hon. Member for Wokingham (Mr. Redwood) suggest, but through co-operation, negotiation, being at the table and making our voice heard.
	As the Minister has said, we should welcome European co-operation on regulation, but only where it is necessary, where it truly furthers the integration of the internal market and where other non-legislative policy solutions have been thoroughly considered. Any new regulation must be implemented in a sensitive light-touch manner, too.
	The City is stronger because of its position within the EU. We act as Europe's wholesale financial services gateway to the world, and the world's financial services' gateway to Europe. It is in Britain's best interests that we stay fully engaged, but we must do it in the City's best interests, not at the City's expense. That is increasingly true on a global scale as developing markets open up, and countries such as China and India develop their financial sectors. Regulatory co-operation is more important than ever before, but we must continue to strike the right balance between protecting investors and entrenching financial stability, and encouraging innovation and foreign investment.
	We should not be scared of foreign investment or foreign ownership in the City. In the late 1990s, more than 40 per cent. of City employees had an overseas employer, and I am sure that that percentage has, if anything, grown since then. Some of the recognised exchanges are subsidiaries of foreign companies. However, we need to be watchful to ensure that foreign takeovers do not lead to the imposition of burdensome foreign regulatory standards on UK exchanges and issuers, and that, as the hon. Member for Fareham (Mr. Hoban) said, the US's extra-territorial ambitions are curbed. I say that as someone who has worked for an American investment bank and has been on the receiving end of the not-so-light regulatory touch of the Securities and Exchange Commission.
	As a member of the Treasury Committee, I visited the US earlier this year with my hon. Friend the Member for Edmonton (Mr. Love), and we heard first-hand about the impact of Sarbanes-Oxley. The London stock exchange has benefited as a result of Sarbanes-Oxley. It attracted a record 129 international companies to its main market and the alternative investment market last year, up 82 per cent. on 2004. Twenty-five per cent. of companies surveyed identified the UK's standards of regulation and corporate governance as the most important factor in their decision to float in London, and of those that had considered listing on a US exchange, 90 per cent. felt that the demands of Sarbanes-Oxley made listing in London more attractive. We were therefore right to choose not to go down that path. However, we need to be ever vigilant to ensure that we do not import overseas regulatory burdens, and that we have the best possible environment in which our financial services industry can continue to prosper and to create jobs.
	I very much welcome the Government's initiative in introducing the Bill. I am sure that it will be welcomed in the City, as it has been on both sides of the House.

Vincent Cable: It is a pleasure to follow the hon. Member for Bristol, East (Kerry McCarthy), whose presentation was all the more authoritative for being based on her own experience.
	The Economic Secretary said at the outset that there is all-party consensus on the Bill, and I certainly do not intend to oppose it. I am not yet entirely persuaded that it is necessary, but that need will no doubt emerge in the course of the debate. When I see Conservative and Labour Front Benchers, together with most luminaries in the City and even Mr. Ken Livingstone, romping in the same bed, I tend to suspect that something not entirely wholesome is taking place.
	I think that the characterisation of American financial regulation—I am not an expert, unlike the hon. Member for Bristol, East—has been a little overdone and rather unhelpful, given that the Americans are aware of the problems and are dealing with them. It was presented as the financial equivalent of avian flu against which we must put up defences.
	Let me go over a few areas of undoubted common ground. First, it is true, as the Economic Secretary said, that the City is a crucial part of the British economy. Ten per cent. of gross domestic product is generated from financial services, although not all of those are based in the City—some are provided by retail banking throughout the country. It is particularly important for employment.
	Secondly, we all agree that financial services must be regulated flexibly—but, as the hon. Members for Edmonton (Mr. Love) and for Wolverhampton, South-West (Rob Marris) said, flexibility must be balanced against investor protection and protection against systemic failure. There is more than one dimension to consider.
	Thirdly, we all accept that we are dealing with global markets that move very fast and that this is not an area where nationalism or national ownership are appropriate concepts. Competition takes place not between countries but between sets of rules. People in the City often employ the imagery of Wimbledon to describe what they are trying to achieve, saying that they are hosting an event and that it does not matter whether British people win it. That is quite a comforting image in some respects. However, there are problems with the Wimbledon comparison. Will Hutton has observed that it is probably because we have Wimbledon that we produce such dreadful tennis players, unlike smaller European countries. He also argues that having an international financial centre may be to the detriment of domestic companies' growth and innovation. I do not entirely buy that, but we have to look at both sides of the argument.
	I part company with the proposals over two issues. First, we should be more honest about what this legislation is for. It is presented as being completely innocuous, but its proper title should be something like the "Investment Exchanges and Clearing Houses (Americans Keep Out) Bill". That is essentially what we are talking about. The Minister and the Conservative spokesman have said that there is no objection to takeovers or to foreigners per se, but it is clear that a barrier is being raised and that powers are being created to deal with takeovers from two particular sources, which just happen to be the two biggest exchanges in the world: the New York stock exchange and NASDAQ. Because they are so big, they have the potential to launch a successful takeover in London.

Edward Balls: Does the hon. Gentleman agree that Morgan Stanley, Merrill Lynch and Goldman Sachs are all important American investment houses that play a vital role in creating jobs and employing people in the City of London? We welcome those American investment houses into the UK, and the idea that we are trying to prevent American ownership in London is disproved by the reality of today's City of London.

Vincent Cable: The Minister is being a little too defensive. I was not suggesting for a moment that there was a problem with American companies investing in London. The problem is with the American exchanges that might take over London or the Euronext market. That is the issue here.
	There are certain forms of regulation that are not covered by the Bill. The right hon. Member for Wokingham (Mr. Redwood) might be able to make this point more comfortably that I can. The Bill does not cover European regulation, which may or may not be onerous. Let us envisage a hypothetical situation—after all, the Bill is all about hypothetical possibilities—in which, as a result of injecting this poison pill into the regulatory system, the New York stock exchange backs off from its interest in the Euronext company, and the Deutsche Börse, a German company that is interested in acquiring a Franco-Dutch operation, succeeds as a consequence of that. As a pan-European exchange, it could then choose to apply European regulation in a way that is unhelpful to London's interests. That is purely hypothetical, but it could certainly happen.
	There is nothing in the Bill to prevent that from happening, because European legislation has primacy here. One of the unintended consequences of blocking American takeovers could therefore be disadvantageous practices against which the Bill provides no protection.

John Redwood: rose—

Mark Hoban: rose—

Vincent Cable: I am sure that one or other of those Members is going to try to reassure me.

John Redwood: The hon. Gentleman has completely misunderstood the proposals. The Bill is not trying to block American takeovers. It might better be entitled the "Protection of Your Interests (Having Taken It Over) Bill". It is saying to the American exchanges that we will not let the American Government mess up the asset if they acquire it.

Vincent Cable: I shall come to the Sarbanes-Oxley legislation, and what it might entail, later. The issue here is whether two particular American companies, the two biggest exchanges in the world, will be able to launch an unresisted takeover of the UK exchanges. The American Government are one or two steps removed from this process.

Edward Balls: I just want to make it absolutely clear—I have made exactly the same point to the chief executives of the New York stock exchange and NASDAQ—that we have no problem at all with the NYSE or NASDAQ owning a UK exchange. We do not encourage or discourage it, but we have no problem with it at all. The issue is whether they would own an exchange where listings are regulated in London by the Financial Services Authority. I made it clear in my speech that we are neither overtly nor covertly trying to prevent there being an American owner of any exchange in London.

Vincent Cable: The two exchanges in the United States have a different interpretation. They have given public assurances that there is no way in which the SEC and other regulations in the United States could be imported through their ownership. We will deal later with how that might happen and whether it is a plausible hypothesis. The Economic Secretary's remarks are reassuring, but they reinforce my scepticism as to why the Bill is necessary in the first place.

Edward Balls: To develop the point further, not only have I discussed the purpose of the Bill with those two American companies, as well as with the London stock exchange and others, but I have seen no public statement of opposition from either of those companies. As I understand it, the opposite is the case: they are comfortable about us taking the power, so that we can be reassured, as can they, that the regulatory regime will not change as a result of a change in ownership. I have no reason to believe that NASDAQ has concerns: to my understanding, the opposite is the case.

Vincent Cable: I am more mystified than ever. If the Economic Secretary has absolutely no problem with the two American exchanges taking over London exchanges, and they have no problem either, why is the Bill necessary in the first place?

Edward Balls: rose—

Vincent Cable: No doubt the Economic Secretary will get an opportunity to reply later. Let me develop my scepticism further.
	One has to question the motives for establishing such a defensive mechanism. Usually, hostile takeover bids are resisted by a company's management. Clara Furse, the manager of the London stock exchange, has said clearly that her exchange is not for sale. That is her strategy. She does not want to sell. The price of shares in the London stock exchange has been ramped up considerably, creating barriers, and its management undoubtedly wants to resist a takeover. Why would the British Government want to create a mechanism to make it easier to protect the insider interest in this case?
	Let me move on to the argument about which the Economic Secretary is exercised, which goes back to the principle and basic economics of exchanges. My starting point would be that an exchange is a network or utility that works best because everybody is a participant in it, as in the case of the electricity grid or bank clearing system. The productivity of exchanges, however, has risen rapidly—in London, by 6 per cent. in the past 20 years—and their monopolistic structure tends to lead to much higher profits and fees, which are resisted by the users.
	Two sets of countervailing pressures are emerging, one of which is competition. In the United States in particular, small exchanges are being launched with low costs. In principle, the new European regulation encourages competition, which, in the course of time, should bid down costs. The Turquoise consortium of investment banks appears to have that objective. The problem of obtaining gains through competition, however, is that it breaks up the network, losing efficiency and potentially raising costs.
	That raises the question of the other route to contestability in the market, which is through takeovers. That is the reason for growing pressure from the New York stock exchange, NASDAQ, Deutsche Börse, Macquarie bank and others to enter the market. The question is whether that is a problem. The problem posed is that one or other such acquisition—if we accept that the worry is not just about the Americans—might succeed in importing into the UK unhelpful forms of regulation, particularly those prevailing in the United States.
	The Conservative spokesman made a genuine attempt to explain the transmission mechanism for that and quoted one example, the registration of hedge funds. As I understand it, however, that case was introduced at the behest of the SEC and has subsequently been dropped, although I am sure that he knows a lot more about that than I do. I think that that is the only concrete case that we have of that type of extra-territoriality being introduced through the exchange mechanism, but there may be many others. The right hon. Member for Wokingham is shaking his head. It is important to understand how this could happen, why it is such a threat in practice, and why the Bill is necessary to prevent it.

Stewart Hosie: I am following the hon. Gentleman's argument as closely as I can. He seems to be suggesting that when an exchange is taken over alien extra-territorial regulation is a significant issue, but would it not almost inevitably lead to the creation of alternative structures? AIM—alternative investment market—and subsequently Ofex were created because of the cost of a full London stock exchange listing. Would this not offer an opportunity for the creation of another exchange somewhere down the line that avoided extra-territorial regulation?

Vincent Cable: What the hon. Gentleman says is absolutely true. It suggests that there is a self-regulating process, which makes it even more difficult to understand why British legislation is necessary.
	Let me take the argument a step further. Let us suppose that we are talking about the potential implications of NASDAQ's taking over the London stock exchange. Why, in any circumstances, would it want to bring American regulation with it? Presumably—the Minister made this point indirectly—it is coming here to pick up listings that it has been unable to attract in the United States, and would strongly resist any attempt to import American regulation through the stock exchange system. From what are we trying to protect ourselves?
	Another point made very well by the hon. Member for Fareham (Mr. Hoban) is that although extra-territoriality is clearly a problem, this is not the most appropriate way of dealing with it, or even directly relevant to most aspects of it. An appalling example of extra-territoriality in recent months is that of the NatWest Three. Taking British employees of a British company to an American court for an offence that they committed in the United Kingdom is real extra-territoriality. There is a problem with British companies that happen to be listed in the United States being pursued in Britain for things that they have done in the United States, and the Bill will not protect against that. If extra-territoriality is to be dealt with, it will have to be dealt with through joint negotiation with the United States. Whatever the virtues of the Bill, it does not deal with the extra-territoriality problem.
	It is being suggested that there is something lethal about the Sarbanes-Oxley Act. Certainly everyone with whom I have discussed it in the City is worried about what might happen if those five pieces of American legislation entered British law. The hon. Member for Wolverhampton, South-West tried to raise a fundamental question: what is the problem, and why is the legislation so difficult and iniquitous?
	Let us return to basics. The Sarbanes-Oxley law was introduced in the wake of Enron and WorldCom. It dealt with a variety of issues, which included investor protection but also accounting procedures. When it was referred to the American Congress, which covers a wide spectrum—no one could accuse American Congressmen of being isolated from business interests and opinions—the Senate backed it by 99 votes to nil, while the House of Representatives backed it by 423 votes to three. The overwhelming consensus, extending from the most libertarian Republicans to the most diehard leftists of the Democratic party, was that the legislation was sensible. Distinguished people such as Alan Greenspan spoke up for it strongly—although they have subsequently acknowledged that aspects of it are a problem, notably section 404. The vast majority of it is uncontentious, and perhaps helpful.

Mark Field: In describing the historical lesson of what happened in the United States, is the hon. Gentleman not making an extremely good case for the argument that, in the aftermath of high-profile failures such as WorldCom and Enron, legislators should be making sensible regulation rather than hastening to play to the gallery?

Vincent Cable: Certain aspects of the legislation have been found to be excessive, and I understand that at the behest of the United States Treasury Secretary they are now being reviewed—and they might well have been removed by the time that this legislation receives Royal Assent and reaches the statute book. The Americans are well aware of the awkward aspects of that legislation and appear to be taking action on it.

John Redwood: Does the hon. Gentleman accept that listings in America have declined while in London they have risen mightily because of this ham-fisted legislation? We are very lucky that the Americans had it. Can he not understand that the crimes that were alleged against the senior executives at Enron were all crimes under the law as it stood before the Americans decided to legislate again? What happened in respect of Enron was a matter of enforcement not of inadequate law, and they responded to it wrongly.

Vincent Cable: There is an element of truth in what the right hon. Gentleman says. I do not pretend to be an authority on financial markets, but it is my understanding that the decline in listings in the United States was taking place quite some time before the Sarbanes-Oxley provisions were introduced. That decline was prompted by, among other things, class actions and the fact that there are multiple regulators with different agendas. The decline of the IPO—initial public offering—market has been referred to; that was in evidence well before the Sarbanes-Oxley provisions came in.
	There is a simple interpretation of recent financial history in which that villainous legislation is responsible for every problem, but there is a lot of good academic research that suggests that companies that have listed in the United States have enjoyed substantial premiums; they have higher regulatory costs, but they also have higher levels of investor protection, which is a positive factor in the market. So there is a trade-off, and the situation is not as clear-cut as some Members seem to be implying.

Stewart Hosie: I seek a little more clarity. Many of the issues we are discussing are about specific commercial companies, which presumably would be dealt with in our country by, for example, the Companies and Insolvency Acts and legislation covering audit, but the Bill is specifically about exchanges and clearing houses. I think that we might be crossing over too much from normal commercial activity. I want us to focus on the Bill's objectives, which seem to be to avoid burdensome regulation over and above that required for an exchange or a clearing house. Is that not what we should be focusing on?

Vincent Cable: I thought that we were. I keep coming back to what I thought was the purpose of the proposed legislation: to stop a particular body of legislation—the American Sarbanes-Oxley provisions—being imported by some mechanism, which has not been entirely explained, into the workings of the British exchanges. The argument in respect of that might be right; I am not suggesting that it is completely wrong. I am just sceptical about whether new British legislation is necessary to achieve that objective.
	In recent months and years there have been some extremely controversial takeovers in the United Kingdom. There have been takeovers in the water industry, in my part of Britain by an Australian company with very strange corporate governance. Abbey and the airports have been taken over by Spanish companies, also with strange corporate governance. Our electricity is delivered by a French company that is an offshoot of the French state. At no point has it been suggested that we need to introduce defensive legislation to protect us from those imports. The view has been that contested takeovers are desirable and might well be in the British national interest, and I share that view. So my final point is: what is so different and special about the London exchange that it requires specific preventive legislation?

Mark Hoban: There is an important distinction between the examples that the hon. Gentleman cited—such as the takeover of BAA plc—and the takeover of the stock exchange: BAA plc exists in a regulatory environment that it does not control, whereas the stock exchange determines its own rules. The Bill is about the rules that the stock exchange and other exchanges use to regulate business conducted on those exchanges. To refer to another of the hon. Gentleman's examples, water companies operate within the framework of Ofwat, but the stock exchange makes its own rules. What we are trying to do in this Bill is protect the rules of the stock exchange; it is not about the ownership of the stock exchange, but about ensuring that its rules work efficiently and effectively and achieve their regulatory objectives. There is a difference between the takeovers that the hon. Gentleman mentioned and the potential takeover of the stock exchange or any other exchange in the UK.

Vincent Cable: I understand the point that the hon. Gentleman makes, and I realise that there is a clear distinction between taking over a network with a set of rules and taking over individual operations. However, I come back to the central point, which I have repeated on several occasions. I completely understand a lot of the reasoning behind the Bill. I realise that there is a wish not to make British regulatory practice more onerous than it already is, and that there is a fear—it has not yet been properly explained, however—that the American rules will be imported into the British system as a result of the takeover. If the Minister can explain how this importation could take place—how the damage could be done—I will be very happy to support the Bill.

Edward Balls: Let me give the hon. Gentleman an example that might help him. There was a concern in some parts of the world outside the UK that the alternative investment market—a lighter-touch market with lighter-touch rules set by the London stock exchange—is too "light-touch". One can imagine a regulator in another part of the world saying to a company regulated in that part of the world, "If you are going to own a foreign exchange like the LSE, which is listing through the AIM, you must make sure that the AIM listings are equivalent to our rules in our territoriality, in order to pass our domestic regulatory regime test." That example shows exactly how an external regulator could attempt to undermine our competitive strength by exporting rules on to the AIM. Does the hon. Gentleman accept that such concerns are very real in the City of London, and that this Bill addresses them?

Vincent Cable: I do understand such concerns, but is not the following point equally valid? Let us say that Deutsche Börse took over the LSE or another exchange. It would find the AIM incompatible with its interests and would seek to reduce its importance and not invest in it, but because it was subject to European, rather than American, rules, it would not be protected in any way as a result of this legislation. Perhaps I have misunderstood the distinction between British and Community rules and American rules, but it seems to me that the example that the Minister has described would apply just as seriously if a takeover took place within the European Union, rather than by an exchange outside it.
	I have repeated the point on several occasions and I need not go over it again. I see the Bill's underlying purpose and I am inclined to support it. I am sceptical about whether it is necessary, and I hope that that will become a little clearer in future exchanges on the Bill.

Helen Goodman: I begin by declaring an interest—my husband recently advised Deutsche Börse on its bid for Euronext. It is a pleasure to follow the hon. Member for Twickenham (Dr. Cable), who treated us to some meaningless statistics yesterday. I would not say that his arguments this afternoon were meaningless, but we have become used to the Liberal Democrats proposing totally irresponsible and completely inconsistent public finance legislation. This afternoon, they have adopted a similar posture toward what is in fact one of our strongest economic sectors. If we went down the path described by the hon. Gentleman, we would lose a valuable exporter and employer to this country.
	The City of London is one of the most successful sectors of the economy, and we employ more than 1 million people in financial services in this country. As has clearly been demonstrated, the days when Labour Governments had an ambivalent attitude toward the City have long since gone. So I welcome the Bill introduced by my hon. Friend the Minister.
	Under this Government, financial services growth has reached 10 per cent. a year. Last year, the financial services trade surplus was some £19 billion. During the past 10 years, foreign equity turnover has increased by 260 per cent., and foreign exchange turnover by 60 per cent. While my hon. Friend the Member for Bristol, East (Kerry McCarthy) was worrying about the Bank of Credit and Commerce International in those far-off days, which were not so halcyon, I was the Treasury official on the foreign exchange desk. The contrast between the situation then and now can be illustrated by the fact that I was authorised to agree to the Bank of England's intervening up to the figure of £50 million a day on the foreign exchange markets in order to stabilise sterling. Nowadays, we do not pursue such economic policies; moreover, £50 million is now such a paltry sum that it would have no impact, anyway.

Mark Field: Given the hon. Lady's lack of ambivalence about the great success of the City of London, how does she regard the comments of the right hon. Member for Neath (Mr. Hain) and the right hon. and learned Member for Camberwell and Peckham (Ms Harman) about City bonuses?

Helen Goodman: I am very happy to say that we are discussing the Bill before us, not City bonuses; however, perhaps we will return to that issue on another occasion.
	It is clear that a key factor in the success of the British financial services sector has been the light-touch, risk-based regulatory regime. The Financial Services and Markets Act 2000 replaced the old self-regulatory regime with an approach based on principles, statutory independence, transparency and a rigorous assessment of costs and benefits for each individual regulation. My hon. Friend the Minister has struck the right balance in the Bill between Government intervention and a laissez-faire approach. He made it clear earlier that the Government have no interest in, or concern about, the nationality of the London stock exchange's ownership. Indeed, the UK markets are already open to overseas investment; for example, the London international financial futures and options exchange is already owned by Euronext. I hope that that satisfies some of the concerns raised earlier by the hon. Member for Twickenham.
	There is a clear trend toward globalisation in the exchanges, as well as in equity trading, which spells the end of natural monopolies in this piece of financial infrastructure and increased competitiveness in the arena of exchanges. It is interesting to note that, despite the huge increase in turnover volume, fee rates have been maintained and bid-offer spreads have not changed, which means that exchange profitability has risen greatly. That is why the banks are looking again at the ownership of the exchanges. While NASDAQ has been looking at the London stock exchange, the LSE is looking over its shoulder at Project Turquoise—a conglomeration of banks that is looking at the LSE.
	So in this very fluid situation, it is right that the Government take action to safeguard our regulatory regime. It would be unacceptable if a takeover of the London stock exchange by a US exchange such as NASDAQ led to US regulatory requirements being imposed on UK issuers of securities traded here. The Bill gives the Financial Services Authority the power to prevent regulatory changes that would undermine our approach, and it gives the power of veto not on day-to-day regulation, but on significant changes that would bring about a disproportionate burden of regulation.
	There are some fundamental principles at issue here. Even those with the most minimalist picture of the role and function of the state acknowledge that it is the state's function to uphold the rule of law and to maintain the value of the currency. We need to resist the tendency toward extra-territoriality of some other states, particularly in a case where our own regime has been successful in attracting new businesses because it keeps down costs. With this legislation in place, I am sure that we will continue to see the successful and dynamic development of the UK financial services sector.

David Gauke: I add my words of support for the Bill, which is a sensible proposal, although I have a couple of queries. I support the Bill because on the issue of globalisation, of which we have heard much today, it answers two questions correctly. The first is on ownership and national champions. Despite the comments by the hon. Member for Twickenham (Dr. Cable), I agree with the points made by the Economic Secretary and my hon. Friend the Member for Fareham (Mr. Hoban) that this is not an issue of economic nationalism. The ownership of institutions in the City is not important. Indeed, there are far more important issues at stake. At a time of growing economic nationalism—the chairman of the CBI, Sir John Sunderland, in remarks reported this morning, was critical of France, Spain, Italy and the US for their economic nationalism—it is pleasing that we have a consensus between the major parties that focusing on ownership is a mistake. Indeed, the City has done well out of Wimbledonisation, whereby we provide the venue and the rest of the world provides the players, and that is to be welcomed.
	The second question that arises from globalisation concerns the difficulty that countries have in achieving the appropriate level of regulation. There is often a race to the bottom, as the jurisdiction with the lowest level of regulation is seen as the most attractive to businesses. That argument is grossly overstated. Globalisation punishes inappropriate, disproportionate and bad regulation, and Sarbanes-Oxley is an example. As several hon. Members have pointed out, Sarbanes-Oxley has resulted in some companies listing in the UK rather than in the US. However, good regulation is necessary. If a country gets the balance right—and we can argue that this country has done so, especially compared with the US in this area—it does well. The race to the bottom argument is therefore weak.
	Countries should retain their own regulatory control, as the Bill suggests, because otherwise the pressure is towards regulation. If globalisation is about economic integration, it also pushes countries towards regulatory integration. Co-operation between regulators is at times appropriate, but too much regulatory integration would be dangerous. One example is the extra-territorial approach adopted by the US on occasion, which is a concern. To return to the points made by the hon. Member for Twickenham, the concern is not that a US exchange will wish to impose additional regulatory burdens on those companies listed on a UK exchange that becomes a subsidiary of the US exchange. The concern is that US legislators will attempt to impose additional regulatory burdens on those companies listed on the LSE or AIM. Extra-territorial legislation regulation is one way in which Governments have attempted to deal with the supposed race to the bottom.
	Another way—and this was touched on by the hon. Member for Bristol, East (Kerry McCarthy)—is supranational regulation, and we see that with the European Union. Some of the arguments that can be used for the approach set out in the Bill—that UK regulation should continue to apply and that we should not be influenced by overseas factors—also apply to European legislation, as the hon. Lady acknowledged. The issue is about getting the balance right.
	I have two specific concerns about the wording of the Bill. The first is the point that I made to the Economic Secretary during his speech earlier. For argument's sake, let us suppose that NASDAQ buys the LSE. Then, prompted by NASDAQ, presumably for reasons of US law, the LSE proposes a rule change to implement Sarbanes-Oxley. The FSA considers that change—whether it is excessive or disproportionate—and blocks it. The next step would be a challenge and judicial review. At that point, the regulatory objectives that apply to the FSA come into play.
	The FSA has the regulatory objective of protecting consumers, and rightly so. However, it does not have the regulatory objective of protecting or maintaining the competitiveness of UK financial services. Does that make the FSA vulnerable to judicial review in such circumstances? I assume that the Treasury has sought advice on that point, but perhaps the Financial Secretary could address the issue when he winds up.
	The issue could have been addressed in a couple of ways. First, section 5 of the Financial Services and Markets Act 2000, which relates to the protection of consumers, could be amended to add a carve-out that makes it clear that any requirement that the FSA deems to be excessive under section 300A is not an appropriate measure for the protection of consumers. The other—and perhaps preferable—way to deal with the issue would be to treat the desirability of maintaining the competitive position of the UK as a regulatory objective, instead of an also-ran, second-tier point. I assume that the Treasury has considered that option and rejected it for various reasons, but I raise the point none the less.

Rob Marris: On the first of the hon. Gentleman's two suggested approaches, is he seriously suggesting lessening or undermining consumer protection? That is what it sounded like.

David Gauke: My point is that it could be a two-stage process. Where the FSA concludes that the rule change is excessive and disproportionate—and bearing in mind its regulatory objectives at that point—it could be because the proposed rule is not appropriate for the protection of consumers. However, the test of whether a proposed rule is excessive under section 300A might be an easier test to apply. Given that the rule change has overcome that hurdle, the FSA would then need to consider its regulatory objectives and other factors. To do so, it has almost to ignore the first step and ask whether the rule change is appropriate and whether it would protect consumers. If the rule change would protect consumers, does the FSA have the flexibility to reject it as inappropriate? The second stage may be harder for the FSA and, under judicial review, it may run into difficulties. It is a technical point and might be better addressed at a later stage, but it is an issue. The FSA is left to make a difficult decision—technical in nature but political in implication—as to whether a regulation is appropriate and proportionate. That will have consequences for our relationship with the US.
	The Protection of Trading Interests Act 1980 deals with some of the same matters as this Bill, and it gives the Secretary of State for Trade and Industry the power to make judgments. Is it right to give the unelected FSA the power to make difficult political decisions? The provision could cut two ways. First, one could claim that the existence of a second tier is more likely to lead to the Treasury being put under political pressure and that it is therefore better to keep matters at arm's length and subject to purely technical decisions. On the other hand, concern could be expressed about whether a mere regulator like the FSA could be brave enough to take on the might of, say, the US.

Rob Marris: The hon. Gentleman and I have exchanged correspondence on these matters. Does he agree that the FSA, the Serious Fraud Office and other regulatory bodies do almost nothing to enforce their powers in respect of insider trading, which evidence uncovered by research reveals to be substantial? How they exercise their enforcement powers is a real problem.

David Gauke: I take the hon. Gentleman's point about insider dealing. We have exchanged correspondence about that, but I do not know whether his analogy applies in these circumstances. One problem with insider dealing is that it is visible in statistics on the large scale, but how does one apply the rules to individuals? The Bill gives great power to the FSA, which is an unelected body. Should not the Government say that they will make decisions about what is excessive or disproportionate, after taking advice from the FSA? Ultimately, that is a political decision, and one that deserves a little more democratic accountability.

Mark Field: I agree with my hon. Friend, but does he agree that the Government may be displaying some consistency? We will discover tomorrow that the SFO is not democratic, and before too long that fraud trials will no longer be heard before juries.

David Gauke: My hon. Friend makes a good and interesting point. I hope that the Financial Secretary will deal with the specific question that I have raised, and say what the rationale was for the decision that neither the House, the Treasury nor any Minister accountable to this House will have a say in the implementation of this Bill.

Andrew Love: I welcome this Bill, which safeguards the regulatory regime through powers to curb disproportionate regulation. I emphasise the word "safeguard", for the benefit of the hon. Member for Twickenham (Dr. Cable). We need to have this measure on the stocks, so that it can be used when necessary.
	There is no doubt that the Bill will help to secure the UK's continued success as a financial centre, but why is it being brought in now? To understand that, we must look at the backdrop to its introduction. All speakers so far have commented on the increasing internationalisation of the City and its institutions. Since the London stock exchange was converted from being a membership organisation, there has been interest from foreign buyers. First was the Deutsche Börse in 2004, then the McQuarrie bank—whose structure no one really understands—in 2005. This year, of course, NASDAQ has continued to pursue its quarry, and we understand that a formal bid has been made.
	However, it is not only the LSE that is subject to internationalisation. The LIFFE is already owned by Euronext, and ICE Futures and other organisations and exchanges are already owned by overseas companies. Indeed, Euronext may well be taken over in the near future by the New York stock exchange. Other hon. Members have observed that there could be new entrants to the market, given the proposal from seven investment banks to create a new European trading platform.
	In addition, there have been significant difficulties in other jurisdictions, especially in the US, with the result that New York has been very much affected. No one so far has commented on the article in yesterday's  Financial Times entitled "Big Apple's Glory Days Passed", or on the report entitled "Down on the Street" in last weekend's edition of the  Economist, which focuses on the challenges to Wall street's assumption of global superiority as a capital market.
	There is no doubt that there is an air of doom and gloom about New York's ability to compete internationally. That was summed up in a recent article by Mayor Bloomberg and Chuck Schumer, the Senator for New York state, entitled "Learn from London". However, we need to look more carefully at the reasons for that decline in competitiveness, and the American press is full of articles trying to describe what has been happening in recent years.
	No mention has been made in the debate about the tougher immigration controls that exist in New York, which are affecting its ability to tap expertise from around the world. They are also limiting that centre's ability to bring people together on a short-term basis, and the result is a real effect on the operation of the New York market. Some people in the US think that New York has been slow to innovate, and anyone who looks at the front page of the  Wall Street Journal will know how slow that innovation can sometimes be.
	In addition, a culture of litigation exists in the US that does not exist here. The SEC undertakes very aggressive litigation, and indeed the newly elected Governor of New York state built his reputation on aggressive prosecutions in the market place. However, the major focus of concern in America has been on the cost of regulation. In that regard, London has a major advantage, in that it has a principles and risk-based regulatory structure with a light touch. That has played a significant role in its success.
	The success of London is worth examining. Financial services make up 8 per cent. of our economy—12 per cent. if we include business services. As was mentioned earlier, the sector has been growing at 10 per cent. a year, with 300,000 people employed directly and an unknown number indirectly. Moreover, it is not often appreciated that the sector employs 100,000 people in Scotland. Another 100,000 are employed in the Leeds area of Yorkshire, although they work more in business services than in financial services.
	London is the only major challenger to New York as a global financial centre. The debate has already touched on London's capacity in foreign exchange dealing, with more than 40 per cent. of the global trade in foreign-based equities. Interestingly, 75 per cent. of the top 500 US companies have a base in London. That is an important consideration, and mention has been made of the cluster effect, whereby expertise in legal, business and finance services are brought together to achieve the success that I have outlined.
	London accounts for an increasingly large share of world activity in financial and other services. Although it is well behind New York and some other centres in hedge fund trading, London's share of the market is growing all the time. The same is true of syndicated loans and last year Europe overtook the US in the corporate debt market.
	The hon. Member for Twickenham spoke about IPOs, but I think that he got it slightly wrong. There has been a seismic shift in that market in a relatively short time. He was right to suggest that the move predates the Sarbanes-Oxley rules, but the IPO volume in New York used to be five times bigger than it was in London. Even so, London overtook New York in that market last year, and many people on the other side of the pond are very worried about that.
	The regulatory framework is incredibly important, but other factors are at work in the successes that I have described. We look for people with the highest professional standards, and we work hard to attract the best talent available. Europeans regularly come to London to learn how our financial services operate. We are open and transparent in much of what we do. As has already been said, more international banks are registered in London than anywhere else and a similar internationalism can be seen across the whole market.
	We have to recognise the impact of those principles on the success of the City and it would be counter-productive to reverse them. We have to ensure that we do not appear to be trying to frustrate or oppose foreign international ownership of our institutions. That is a cardinal principle and I very much support the Economic Secretary's clear statement of it today. The Government have to remain neutral on ownership; there is significantly more international ownership in London than in any other marketplace, which has been of great benefit to us.
	We also have to recognise that consolidation and integration in financial services may—only may—threaten the light-touch regulation that has been the hallmark of the City and of the FSA since it was set up. As I have said before, evidence suggests that that light touch gives the City a significant advantage over other marketplaces. Indeed, excessive regulation threatens the possibility of a retreat offshore. We have already discussed that point this afternoon, so I shall not go into it. What is most important is that we ensure that the legislation will protect the integrity of London as a global financial centre.
	The Bill also responds to the concern, about which we have had quite a debate, that the acquisition of City institutions may bring extra-territorial application of regulations. We have talked in particular about Sarbanes-Oxley. In my view, that would extinguish London's present regulatory advantage, because it would provide additional onerous regulatory requirements, and we have asked questions about that. The internal control report, which is part of Sarbanes-Oxley, seems to be the focus of greatest concern in terms of the legislative changes introduced under that Act. It is clear that there has been a considerable hike in compliance costs as a result of the measure.
	The Government have already considered some aspects of Sarbanes-Oxley in some detail and concluded that they would be disproportionate, although, interestingly,  The Economist refers to the cost-benefit of the introduction of greater regulation. Of course, one study will say one thing, while another says something else, but the import of the studies carried out so far appears to be that at the lower end of the market—up to $250 million—there is a disbenefit and that the benefit begins to increase the larger the company becomes. The alternative investment market may be the biggest beneficiary of our decision to resist that additional regulation, as appears to be happening.
	I welcome the power in the Bill to veto excessive regulation and, indeed, the framework to ensure that the FSA does not get involved in the day-to-day commercial judgments of exchanges. That is extremely important; exchanges have to be left to carry out their business. The Bill also rejects micro-management of the rule books and the vetting of every rule change. There must be a broad-brush approach—a simple veto power when disproportionate regulation is being considered.
	We have to enshrine in the legislation the fact that our exchanges remain open to overseas ownership, and we must send that message clearly. It is an important principle that the City has always upheld.
	Putting all those measures together, this simple Bill will provide the safeguards that we require and will, when necessary, ensure the continuation of the light-touch regulation that has been such a success in the City. I commend it to the House.

Mark Field: Like other speakers, I welcome this minor but important piece of legislation and support the powers that it proposes to give the Financial Services Authority.
	Although I am unaccustomed to supporting aspects of Liberal Democrat speeches, it is particularly important to consider Bills that have overwhelming support with a slightly more sceptical eye, so I supported the hon. Member for Twickenham (Dr. Cable) in some of his concerns. He rightly pointed out that Sarbanes-Oxley had got through both Houses of Congress with precisely three opposition votes out of 550—someone will probably note that there are slightly fewer than 550 legislators in the United States, but I am sure that the hon. Gentleman recognises my point. When there is overwhelming agreement, there is often no proper debate, so it is right that we have had some discussion of this relatively small Bill.
	The history lesson in the contribution made by the hon. Member for Bristol, East (Kerry McCarthy) was most welcome, as indeed was the contribution of the hon. Member for Edmonton (Mr. Love). The City of London has always been internationally minded; at least, it certainly was until 1914 and then from the early 1970s. The hon. Gentleman referred to what he regarded as the fiasco of the eurobond market, but in reality it was high tax in the USA that opened up the eurobond market to Europe. It was only the foresight of the Thatcher Government, with the big bang in 1986, that ensured the internationalisation in the City of London, from which, as has been pointed out, the whole country has prospered. Without a thriving financial services industry, the UK would be in deep economic difficulties.
	Of course, a thriving financial services industry brings problems. London Members see many of the problems that have resulted from the great strength of the City of London. However, that strength is to be welcomed, as is the fact that so many Labour Members, who, 15 or 20 years ago, were somewhat less than ambivalent about the power of the City, now embrace what it brings.

Helen Goodman: I wonder whether one of the problems with the City of London is the exceptionally high level of bonuses this autumn. What is the hon. Gentleman's attitude to that?

Mark Field: rose—

Mr. Deputy Speaker: Order. I think that the hon. Member for Bishop Auckland (Helen Goodman) might take her earlier advice as to what is relevant to the debate.

Mark Field: Saved not by the bell but by you, Mr. Deputy Speaker. Thank you very much indeed. Given my earlier intervention, I guess I was asking for that comment from the hon. Lady.
	In a nutshell, the Bill ensures that the FSA will be able to prevent recognised investment exchanges and clearing houses from adopting regulatory changes that it regards as disproportionate to the regulatory objectives proposed. The underlying concern is that otherwise the internationally competitive position of the UK-based financial services industry in globally competitive markets may be damaged. The protection of the competitive position of London investment exchanges that may in future be acquired by overseas shareholders is the main purpose of the Bill.
	Naturally, that brings into the equation two other issues to which several Members have referred. The first is the principle of overseas control. In fact, the City of London is already internationally owned, staffed and managed—a process that accelerated rapidly after the 1986 big bang. Legitimate concerns have been expressed on both sides of the House about how sustainable that would be in a massive economic downturn.
	Clearly, there was a recession in the early 1990s, which hit the City of London as it hit many other parts of the British service industry. There was also grave concern that by not joining the euro at the beginning of this century, Britain could find its competitive advantage in London undermined. That has not come to pass. Equally, however, we should not be complacent about the longer term, while we should rejoice about the fact that the City remains very strong in spite of the fact—perhaps even because of it—that overseas ownership allows flair and innovation from all corners of the globe to play an important part in the London market.
	Secondly, the issue of the limits of protection in the Bill has also been drawn to my attention. My reading—perhaps it also takes us back to the thoughts of the hon. Member for Twickenham—is that in the event of NASDAQ's bid for the stock exchange proving successful, we cannot provide protection against actions potentially in the US or in British courts by aggrieved US investors in LSE-quoted securities or, indeed, by high-profile district attorneys wishing to make a name for themselves. We have had a broad-ranging debate about the effect of Sarbanes-Oxley and it is now clear that, given the concerns evident in the US market, there has been a rowing back from it.
	I hope that we can take the opportunity provided by the Bill to make the case once again for the pursuance of a minimum regulatory regime, especially in view of foreign membership as a fact of City life. We need to remember that innovation, flair and light-touch regulation have been the watchwords for many of the great successes in the overseas and outward-looking global financial markets in which London has played an important part over recent centuries. We should ensure that the UK authorities are able to regulate to the lightest possible degree and avoid the micro-management of the financial markets, to which other hon. Members have referred, irrespective of their ownership of the exchange in question.
	I believe that that is the intention of this small but important piece of legislation. I welcome it as a positive step forward, which has certainly been welcomed by the City of London corporation in my constituency. It is wise to look carefully into all aspects of regulation and the way in which the FSA operates. We cannot be complacent. I detected from the Minister's earlier comments that with the additional powers given to the FSA in 1997, we had somehow been able to ward off all the problems that had arisen from Enron, WorldCom or the litany of previous scandals in this country that were outlined earlier by the hon. Member for Bristol, East. We should always remember that there will be crooks in any market and we should not be overly complacent that, in putting a new regulatory framework into place, we have somehow made ourselves immune from any such nefarious behaviour.
	I welcome the Bill and hope that after rapid progress on Report and Third Reading it will be on the statute book before too long.

Paul Goodman: I am grateful for the opportunity during this short Third Reading debate—[Hon. Members: "Second!"] I am sorry, I mean Second Reading debate; time has flown so fast that it has evidently left part of my mind behind. On behalf of the official Opposition, I wish the Bill all good speed and I will reiterate briefly why it merits all-party support. I believe that it does, in the end, have all-party support. The hon. Member for Twickenham (Dr. Cable) provided the necessary grit, but said at the end of his speech that he was inclined to support the Bill. I have to say, though, that having listened to his entire contribution, I was not always sure that he was going to reach that conclusion.
	We thank the Economic Secretary for sharing a draft of the Bill with us and for briefing us personally. After all the turmoil, drama and excitement of yesterday's Queen's Speech debate, we are glad to see that the clunking fist has been replaced by the outstretched hand of co-operation, but we know, of course, that we will be back to normal business soon—

Edward Balls: Tomorrow.

Paul Goodman: No doubt tomorrow, and we all look forward to it.
	I would like to respond to some of the good and expert speeches, beginning with those of Labour Members. We heard what can fairly be described as two hymns to the City as a powerhouse of capitalism from the hon. Members for Bishop Auckland (Helen Goodman) and for Bristol, East (Kerry McCarthy). Conservative Members enjoyed listening to both. This week, we have heard some Conservative spokesmen defending the work of Polly Toynbee and now two Labour Members defending the power of capitalism. It would understandable if onlookers were somewhat confused, but I shall explain in a few moments why such views might be held and why the Bill is necessary. We also heard an expert speech from the hon. Member for Edmonton (Mr. Love), who made some interesting points about the present climate in the US, particularly with regard to litigation culture, and the effect of immigration restrictions on financial markets.
	My hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) took us, as those who served in Committee on the Finance Bill might have expected, into legal territory, weighing up the balance between necessary regulation and consumer protection on the one hand and a light touch on the other. I do not know whether he has had the opportunity to talk to someone whose name, for some reason, escapes me, but who figured a great deal in proceedings on the Finance Bill.
	My hon. Friend the Member for Cities of London and Westminster (Mr. Field), who knows a great deal about these matters—they are, so to speak, on his doorstep—made an expert speech. He rightly said that we must preserve the innovation, flair and light-touch regulation that is the hallmark of the City.
	The House may be concerned that proposals that command cross-Bench support do not always necessarily stand the test of time. I received a note saying just that before the hon. Member for Twickenham raised the interesting point that Sarbanes-Oxley went through the US legislature almost unopposed. Given the criticisms of aspects of Sarbanes-Oxley that we have heard in the debate, it is right for us to pause for a moment and consider whether, because the Bill commands all-party support, it should necessarily glide through. I thus want to reiterate by coming straight to the main point why we believe that the Bill is workable and durable.
	The Bill is effectively built on the paradox that the preservation of the present light-touch regulation of financial services can be guaranteed only by extending the powers of the regulator. That paradox is, like most paradoxes, quite hard to accept at first, so it is necessary to show why it holds good. The London stock exchange may be acquired by a US exchange, as others may in due course. Once again, like the Government, we have no objection to that whatever. The Bill has nothing to do with keeping the stock exchange in British hands, in the sense of flying the Union flag above the LSE, just as it has nothing to do with any particular takeover possibility and it does not seek to prevent the LSE from being bought by any foreign company or group.
	We all want to ensure—Government Members as much as Opposition Members—that UK capital markets remain competitive. It has nothing to do with economic nationalism and everything to do with the national interest—two words, not to mention prosperity and employment, used by the Economic Secretary in his opening remarks. There is widespread concern that the acquisition of the LSE could lead to changes in its rule book that would damage the competitiveness of UK capital markets.
	The source of such concern is the Sarbanes-Oxley legislation, which was introduced in the aftermath of Enron and WorldCom, and the general tendency of the regulation of financial services to creep across national boundaries, which my hon. Friend the Member for Fareham (Mr. Hoban) described in some detail. He referred specifically to the present double regulatory requirements not only on hedge funds, but on UK auditors.
	In short, given the global nature of modern capital markets, businesses that want to raise money can effectively choose where to do so, and the effect of the Sarbanes-Oxley legislation has been to make US markets less attractive and UK markets more attractive. Consequently, US exchanges are looking abroad to strengthen their businesses. The risk is that the takeover of the LSE by a US exchange would enable the SEC to act extra-territorially and allow creeping regulation. The Bill thus necessarily alters the present arrangement whereby the LSE and all UK recognised investment exchanges and clearing houses have the freedom to set their own rules, subject to meeting certain criteria.
	The FSA will therefore have a vital responsibility in drawing up the rules that flow from the Bill, and an interesting aspect of the debate was the degree to which it has concentrated attention on the FSA's responsibility to get them right, to ensure that the additional compliance burdens on exchanges are minimised to preserve precisely the competitive position of the UK markets to which I referred a moment ago.
	In closing, I want to stand back from the Bill for a moment to consider a general law of life and politics to which it points: our old friend the law of unintended consequences. I doubt whether the movers of the Sarbanes-Oxley legislation intended to improve the relative position of UK and European capital markets. That seems to be a classic illustration of the law of unintended consequences, and it helps to explain why my hon. Friend the Member for Fareham warned the House that, while one piece of legislation can strengthen our competitive position, another can weaken it.
	Of course the Bill will not protect the competitive position of our capital markets from all aspects of creeping extra-territoriality. It will not protect those markets from new laws proposed in Brussels—that, of course, is not its function and those are matters for another day—but it will protect our capital markets from a danger, and that is why we believe that it deserves all-party support.

John Healey: I am grateful to hon. Members on both sides of the House for the attention that they have given to the Bill on Second Reading. I welcome the fact that the hon. Members for Fareham (Mr. Hoban) and for Wycombe (Mr. Goodman) have welcomed the Bill. I particularly welcome the fact that, in a debate on the City of London, there have been more speeches from Government Back Benchers than from the Opposition—probably something of a milestone in the House.
	A number of important points have been made in the debate, some of which are probably best dealt with in Committee, which, I hope, we shall come to shortly. Before dealing with the principal concerns and arguments that have been raised in the debate, let me underline the purpose of the Bill. As my hon. Friend the Economic Secretary stressed in his opening remarks, we are legislating not to impose regulation, but to avoid it. I appreciate that that might sound contradictory, but it goes to the heart of what we want to achieve.
	We want to safeguard our successful, risk-based and highly competitive regime of market regulation, which has helped to make London the world's leading international financial centre. The Bill will do that. It will create a system in which the FSA, which is widely respected here and abroad as one of the world's leading financial regulators, can veto disproportionate regulatory changes proposed by exchanges or clearing houses for the markets that they provide and support, while putting in place mechanisms to enable the FSA to ensure that that will not impose any unnecessary or excessive burden on exchanges or clearing houses.
	My hon. Friend the Member for Bristol, East (Kerry McCarthy) brought to the debate her experience as a member of the Treasury Committee and at Abbey National. She noted not just the successes of the City of London, but some of the underlining reasons for its expansion. She talked very sharply about the challenges of regulating effectively, both domestically and in Europe. She also talked about the evolution from the systemic regulatory failures in the City of London and in financial services to the approach now taken by the FSA.
	My hon. Friend the Member for Edmonton (Mr. Love), who is a former member of the Treasury Committee—

Andrew Love: I am still a member of it.

John Healey: I beg my hon. Friend's pardon. He is a long-standing and serving member of the Treasury Committee, and he demonstrated not only the expertise that that Committee has built up, but his personal expertise about the financial services and markets in both the UK and the US.

Andrew Love: I plead guilty to membership of the Treasury Committee, but unlike my two colleagues—my hon. Friends the Members for Bristol, East (Kerry McCarthy) and for Bishop Auckland (Helen Goodman)—I would not plead guilty to having previously worked in the City.

John Healey: I hope that my hon. Friend remains a Member for a very long time, but if he looks for a change of career, I am sure that opportunities will open up to him, given his expertise.
	My hon. Friend reminded us, as no other contributor to the debate did, that UK financial services are an important feature of the economy not only in Scotland but in Leeds. As a Yorkshire MP, I slightly hesitate to say this, but the financial services centres in other parts of the UK are heavily dependent on the outstanding performance and position of the City of London. My hon. Friend rightly said that the test of the Bill should be whether it will protect the integrity of the regulatory system in London.
	My hon. Friend the Member for Bishop Auckland (Helen Goodman) brought to the debate experience not of serving on the Treasury Committee, but of working in the Treasury as an official on the foreign exchange desk through some interesting times in the past and as a member of the Public Accounts Committee. She vividly described the nature of the global financial markets, and she clearly understands the case for the safeguards in the Bill.
	The hon. Member for Twickenham (Dr. Cable) said that he will not oppose the Bill, but he remains to be convinced about it, and I hope that my hon. Friend the Economic Secretary and I can do just that this evening. However, the Bill is emphatically not a legislative "Americans keep out" sign. I thought that my hon. Friend was very clear in his remarks and interventions. The Government are studiedly and publicly neutral on the merit of any takeover bid for the London stock exchange, including any from the US. The issue is not the nationality of ownership, but the nationality and nature of the regulation. We want to ensure that the investment exchanges and clearing houses that operate in London are regulated in London by the FSA.

Vincent Cable: I wonder whether the Financial Secretary can confirm a comment that, I think, the Economic Secretary made in a telling intervention on my speech. I think that he said that the American exchanges—NASDAQ and the New York stock exchange—welcome the Bill and would not see it in any way as an obstacle to their proceeding with a takeover. Is that correct?

John Healey: My hon. Friend the Economic Secretary has indeed, as he explained to the House, had conversations with the leading figures responsible for the two US exchanges. They have confirmed to him that they see no obstacle to their interest in the London stock exchange in the content of the Bill. I want to make it clear to the hon. Gentleman that the issue is not one of protecting business, but one of safeguarding the regulatory approach that we have in London, which is defined and controlled by the FSA.
	The hon. Member for South-West Hertfordshire (Mr. Gauke) alighted on a couple of legal points, particularly in relation to clause 1 and the factors that the FSA may take into account under proposed new subsection (4). If he will forgive me, those points may be better dealt with in the next stage of the proceedings, particularly in relation to amendment No. 8 in the name of the hon. Member for Fareham.
	We all have an interest in the Bill, but the hon. Member for Cities of London and Westminster (Mr. Field) is really the only Member of the House with an authentic constituency interest in its content. He clearly has an interest in the future competitiveness of the City of London, as he explained. He rightly argued the importance of a light-touch, principles-based approach to the regulatory regime. The Bill reflects that.
	There were two questions—first, from the hon. Member for Fareham, and secondly, from my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) in an intervention—on the timings in the process that the FSA will be responsible for. The hon. Member for Fareham asked whether the 30-day period would be sufficient for the FSA to consider the impact of any proposed rule changes and then make a decision about whether to call in such proposals. In drafting the Bill, we consulted the FSA. It makes its supervisory decisions independently, within the framework of the Financial Services and Markets Act 2000. In drafting the Bill as we have, we believe that it strikes the right balance between giving the FSA sufficient time to consider the potential impact of proposed rule changes and ensuring that there is not unnecessary delay or uncertainty in the system.
	My hon. Friend the Member for Wolverhampton, South-West is quite right to make an observation about the lack of specified time limits for the representations in the Bill. He probably would have found that in the explanatory notes, as well . [ Interruption. ] My hon. Friend the Member for Edmonton says that that is if my hon. Friend the Member for Wolverhampton, South-West got to the explanatory notes. In my experience, my hon. Friend goes first to the explanatory notes. I have never been involved in a debate on a piece of legislation in which he has not scrutinised the explanatory notes in extreme detail. He is correct to say that the FSA will be able to set the period for representations. The reason why is that it is important that there is sufficient time for careful scrutiny in what we regard as the likely rare event that the FSA decides to call in a regulatory provision. However, as was set out in the letter from the chief executive of the FSA, the FSA will use that power in a way that is consistent with its principles-based approach to regulation. I should also explain to the House that that is consistent with other consultation powers under the Financial Services and Markets Act.
	I turn to the concerns that the hon. Member for Twickenham worried away at in his contribution. He questioned, first and foremost, whether the Bill is necessary. Although all the recognised investment exchanges and clearing houses have reservations about the detail of the Bill and will welcome the scrutiny that the House is providing, the Joint Exchanges Committee thinks that the Bill is necessary. It states:
	"We all appreciate and support any initiatives that protect UK regulatory standards from extraterritorial interference."
	The London stock exchange thinks that it is necessary. It states:
	"we are very supportive of the plans to give the FSA additional powers to veto any attempts to introduce excessive or disproportionate regulations that would impair the City's ability to compete for global equity markets business."
	The CBI thinks so. It says that it
	"Seems clear that all this is highly advantageous".
	The Association of British Insurers also thinks so. It tells us:
	"We believe it is very positive that the government has demonstrated clear political will to combat creeping extra-territorialism".
	It is reasonable to pose the question—as the hon. Gentleman did—of why any commercially run exchange would want to damage its own business by excessive regulation. However, the owners of an exchange or clearing house can come under a variety of pressures to change their regulatory provision and rules and those pressures may not always have a commercial motivation or a commercial source. Competition may not always be effective in challenging or controlling those pressures.
	The hon. Gentleman's second question was: why is existing legislation not sufficient? I assume that he had in mind EC regulations and the Protection of Trading Interests Act 1980. The existing legislation could be used only if an overseas authority sought to impose its national requirements directly on a UK exchange or clearing house in respect of its UK activities. In contrast, if an overseas owner were subjected to pressure under its home state law or regulations to secure that a UK investment exchange or clearing house was operated in practice in accordance with that state's law, the existing European regulation and the Protection of Trading Interests Act could not prevent lawful instructions being given by the foreign owners. The Bill, however, will allow for all regulatory provision to be assessed so as to prevent regulation that is excessive in the UK context from being made, whatever its source.
	We need to ensure that the regulatory provision of key providers of investment exchanges and clearing houses remains appropriate in all circumstances and that it reflects the proportionate, risk-based approach set out in UK and EU law. That is why we are introducing the Bill. I hope that my hon. Friend the Economic Secretary and I can reassure the House that the Bill will achieve those important objectives and will do so without imposing an unnecessary burden on exchanges and clearing houses. I look forward to further debate and to support—I hope—from both sides of the House on Second Reading and in subsequent stages.
	 Question put and agreed to.
	 Bill read a Second time, and committed to a Committee of the whole House, pursuant to Order [this day].
	 Bill immediately considered in Committee.

[Sylvia Heal  in the Chair]

Clause 1
	 — 
	Power of FSA to disallow excessive regulatory provision

Mark Hoban: I beg to move amendment No. 1, in page 1, line 6, after 'where', insert
	', from the effective date of this section and following a change of governance of a recognised body, such'.

Sylvia Heal: With this it will be convenient to discuss the following amendments: No. 2, in page 1, line 6, after any', insert 'material'.
	No. 3, in clause 2, page 2, line 16, after 'that', insert ', following a change of governance'.
	No. 4, in page 2, line 16, after 'any', insert 'material'.
	No. 5, in page 3, line 13, after 'where', insert
	', following a change of governance in respect of a recognised body,'.
	No. 6, in page 4, line 11, at end add—
	'(4) In sections 300A and 300D "change of governance" means, in respect of a recognised body, the obtaining of material influence by a person who did not previously exercise material influence over—
	(a) the board of the recognised body, or
	(b) the board of any person who (whether directly or by means of holding control over one or more other persons) has control over the recognised body.
	(5) For the purposes of subsection (4) the obtaining of material influence by a person who is—
	(a) a new holding company where the interests of the members of the new holding company are the same as, and held in the same proportions as, the members of the recognised body (or the holding company of the recognised body, as the case may be) immediately prior to such company becoming the new holding company, or
	(b) a wholly owned subsidiary of the recognised body or any such new holding company,
	is not a change of governance.
	(6) For the purposes of subsections (4) and (5) "material influence"—
	(a) means the power (whether directly or indirectly and whether by the ownership of share capital, the possession of voting power, contract or otherwise) to appoint or remove all such members of the board of directors or other governing body of a person as are able to cast 50 per cent. or more of the votes capable off being cast by the members of the board or governing body on all, or substantially all, matters, or otherwise to have (or have the power to have) material influence over the policies and affairs of that person; and
	(b) is demonstrated if the person exercising material influence acts in a way otherwise than in accordance with United Kingdom corporate governance standards.'.

Mark Hoban: Let me be quite clear at the start that this group of amendments, and subsequent amendments, are probing. They arise from conversations that I have had over recent weeks with people in the financial services sector who seek to use the opportunity of the Committee stage to understand some of the thinking behind the Bill and why it has been structured as it has. I think that we would all acknowledge—the tone of the debate on Second Reading indicates this—that the current system of regulation for investment exchanges works well, and that the rules that it has come up with seem to be proportionate and lead to efficient markets. In fact, we can see the attractiveness of those rules being expressed in the amount of new money that has been raised on the London stock exchange.
	It is in the context of existing markets that are seen to be well regulated and which work effectively that we are considering the Bill today. The Bill is before us because of the threat in relation to the change of control of one of those investment exchanges. If the independent status of the LSE had not been threatened, I suspect that the Bill would not have come before us, or at least would not have been rushed through all its stages in this House in a day. Clearly, the prospect of such a change of control has triggered a thought process not only in the mind of the Government, but in the minds of Her Majesty's Opposition and of stakeholders in the financial services sector.
	We do not know whether the LSE or any other recognised investment exchange will be acquired by NASDAQ or any other bidder that might come forward. If the LSE were to retain its independence, there would be no reason to believe that it would wish to bring forward excessive regulation that would put at risk the competitiveness of UK capital markets. As far as I am aware, it has not tried to introduce such rules, so if it remains independent, there is no reason to think that it will do so in the future. However, under the Bill, even if the LSE retains its independence and there is no change of ownership, it and other recognised investment exchanges will be subject to regulation as has not hitherto been the case. On Second Reading my hon. Friend the Member for Wycombe (Mr. Goodman) highlighted the paradox that we are extending to exchanges regulations that do not exist at present.
	The purpose behind the amendments is to probe why the Government have chosen to introduce a blanket change in regulation, rather than awaiting a change of control before bringing regulations into effect. As the Economic Secretary said on Second Reading, the provisions will effectively come into force on the day after Royal Assent, so any changes that take place from that day forward will be subject to the process under the Bill. If the impact of the Bill were restricted to circumstances in which a change of control had taken place, it would mean that exchanges that had not been subject to a change of control would continue to benefit from existing regulatory mechanisms and would not have to incur additional costs through the call-in process, nor would the FSA have to go through the process of reviewing the rules. Amendments Nos. 1 to 6 give us the opportunity to ask the Economic Secretary why the Government are saying that all future changes to regulations by recognised investment exchanges and clearing houses should be subject to such a process, and why the process is not restricted to circumstances in which there has been a change of control.

Edward Balls: Let me take the amendments in two groups. Amendments Nos. 1, 3, 5 and 6 would introduce a trigger mechanism so that the powers of the FSA to veto excessive regulatory provisions would arise only when the trigger had been operated—the trigger being a change of governance or control of an investment exchange or clearing house. Amendments Nos. 2 and 4 would insert the word "material" before the phrase "regulatory provision".
	It seems that amendments Nos. 1, 3, 5 and 6 would introduce two different triggers. Amendment No. 6 states that the change would be exercised
	"if the person exercising material influence acts in a way otherwise than in accordance with United Kingdom corporate governance standards."
	It is not easy to work out from the amendments whether the trigger would be brought about by a change in control, or a change in control when it was also the case that the person with control over the recognised body acted unacceptably. The rule provision could not be triggered by both a change in governance and someone behaving unacceptably. The latter point is the important one. The trigger is not a change in governance, but whether people behave unacceptably, as defined in the Bill. We are setting up an important test. Rule changes judged by the FSA to be disproportionate and excessive, not a change of governance, will be the trigger for the FSA to consider its veto power.
	The hon. Member for Fareham (Mr. Hoban) is absolutely right to point out that if there were no change of ownership at the LSE or any other exchange, the new powers would still come into operation. However, if any UK or foreign-owned exchange were to act outside "corporate governance standards", as amendment No. 6 says, or, more generally, disproportionately and excessively, it would be right for the FSA to trigger the power. It would be unacceptable if we could trigger the power if there was a new owner of an exchange, but could not do so if an existing owner of a UK or foreign exchange that had not been subject to a change of governance acted unacceptably. We are trying to apply the trigger power in a way that is consistent across the piece.
	We feared that if the mechanism was triggered by a change of governance, the measure would be not only unworkable but discriminatory and unfair. Such a measure would protect existing managements by allowing them to do what they liked, while imposing new requirements only on exchanges with changed ownership. That would create a deterrent to takeovers. It would unnecessarily discriminate against both foreign and domestic future owners, because they would have a greater regulatory burden than existing foreign or domestic owners.
	We also feared that discriminating between two types of owners carrying out essentially the same action would be incompatible with our obligations under EC treaties and the World Trade Organisation's general agreement on trade in services. In addition, the right hon. Member for Wokingham (Mr. Redwood) has pointed out that irrespective of whether owners are new or existing, or foreign or from the UK, if they act in a way that is excessive, disproportionate and outwith the wider objectives set out in the Financial Services and Markets Act 2000 and the FSA's rules and guidance, it is right that we should take action to veto. The Bill will enable us to do that, but the amendments would undermine the process.
	We have discussed amendments Nos. 1 to 6 in detail with the exchanges, and I know that the hon. Member for Fareham will have done the same thing. I understand the intention behind Amendments Nos. 2 and 4 and the desire to strengthen barriers to the FSA acting disproportionately by inserting the word "material" to the Bill. However, we have concluded that the amendments would not give any extra protection to exchanges. They would not make unnecessary notifications less likely. Exchanges and clearing houses want legal certainty, but adding the word "material" would not give them any extra certainty, because there would be exactly the same room for doubt and argument. The only effect of the amendments would be that exchanges and clearing houses would have to take further legal advice on the meaning of "material" in such cases.
	The conclusion that we have reached, which is more reflective of the spirit and intention of FSMA, is to put in place a rule-making power for the FSA. We believe that the process of discussion and consultation that will lead to FSA rules about the way in which it will use the powers in the Bill will give more certainty and comfort to exchanges than inserting the word "material" in the Bill. As I explained on Second Reading, the waiver for the first 12 months will ensure that while such consultation is conducted, the FSA will have discretion to waive its powers for certain types of new rules.
	We have examined amendments Nos. 1 to 6 in detail and discussed them with the exchanges in the City. As I have explained, we do not think that they would meet the concerns of the exchanges. However, we made modifications to our proposals in the light of their representations. In particular, the rule-making power and the waiver power offer a better way of assuring the exchanges that we will act proportionately, carefully and not excessively.

Stewart Hosie: I agree with the Economic Secretary, particularly in his scepticism about amendment No. 1, which, as I understand it, simply seeks to bring the clause into effect when there is a change of governance. He is right that there should be consistent application of the rules in all circumstances. The hon. Member for Wycombe (Mr. Goodman), speaking for the Conservatives, got it right when he said that the issue was not economic nationalism, but the national interest, which includes jobs.
	Brief reference was made to Scotland, where 127,000 people are employed in banking, finance and insurance. Five of Scotland's top 10 businesses are in that sector. Back home, it is one of the industries in which one can reach the very top of one's career, working in a global company with a genuine international reach. As has been said, it is not only the City of London, but the Financial Services Authority's light-touch regulatory approach to the sector, that has been the success. We support the clause, and we support taking a consistent approach, whether or not there is a change of governance. I shall keep my contribution short, but I should just say that I agree with the description given earlier: the paradox is that by giving more power to the FSA, we ensure that a light touch remains. The global reach of world-class companies, and 127,000 jobs in Scotland, can be protected and enhanced by the measure.

Mark Hoban: As I said earlier, this is a series of probing amendments and we have had a useful exchange. First, on amendments Nos. 2 and 4, the Minister is absolutely right, and the letter from John Tiner, to which we referred earlier, should reassure investment exchanges and clearing houses about the way in which the FSA will seek to use the powers. Of course, the consultation process that will take place over the next few months to determine the detail of the rules for call-in will reinforce the message set out in that letter. That should give exchanges and clearing houses further reassurance about the way in which the new powers will be used.
	I now turn to the amendments about change of control. Perhaps there is a second paradox on display: it took a potential change of control in an investment exchange to flag up the issue of the freedom that exchanges and clearing houses enjoy in determining their own rule books. Although historically that has been seen as a strength, clearly, in future, challenges could emerge that would change that strength into a problem. By taking the necessary powers now, having been prompted by the potential change of control, we are ensuring more certainty over the regulatory environment in the UK. In a sense, even if the acquisition of the London stock exchange by NASDAQ does not go ahead, perhaps the prospect of it has done us a favour by highlighting the issue. It led us to introduce this legislation quickly, so perhaps in the long term it has done UK financial services a great favour by making us look at the rules once more, and making us think about how the rule book will develop. I beg to ask leave to withdraw the amendment.
	 Amendment, by leave, withdrawn.

Mark Hoban: I beg to move amendment No. 8, in clause 1, page 2, leave out line 5 and insert
	'need to maintain the competitiveness of United Kingdom markets,'.
	On Second Readings I sought to highlight the opacity of the wording of proposed new section 300A(4)(b). The purpose of the Bill is to protect the global competitiveness of UK capital markets, but it is not entirely clear how that fits in with the four factors in subsection (4). I am sure that the Minister will come up with good reasons for the opaque wording of the provision, but the wording should make the thrust and purpose of the Bill clear. My amendment would give the Bill a degree of clarity, so that no one could be in any doubt about its purpose and what it seeks to achieve.
	As for the precise wording of proposed new subsection (4)(b), financial markets are global and activity is mobile, but that does not necessarily lead to the conclusion that regulators should veto rules that would have an impact on the competitiveness of UK capital markets. Indeed, some might say that because of the mobility of activity there should be a single set of global rules, not different sets of rules for different jurisdictions. That is not my view, but the wording of subsection (4)(b) is not sufficiently clear to inform readers about the precise purpose of the Bill and what it seeks to protect. The wording is rather bland and neutral, and my amendment would make it slightly crisper and more focused, to get the point across.
	That echoes comments made by my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke)—he may well speak on this point, too—about how the wording fits in within the regulatory objectives of the Financial Services and Markets Act 2000, in which competitiveness is not one of the regulatory objectives. It is relegated to as a factor to which the FSA should "have regard". By anchoring the Bill in the context of much clearer and sharper wording, we will lose any ambiguity about what the Bill seeks to achieve, and we will perhaps give practitioners and regulators a much clearer sense of direction.

David Gauke: I have read the wording and I have a concern about its context. It says:
	"In considering whether a requirement is excessive the Authority must have regard to all the relevant circumstances, including...the global character of financial services and markets and the international mobility of activity".
	That could be read as meaning that we should take into account regulations that apply in other jurisdictions. Given that we must take account of the global character of financial services, and global regulations such as those in the US, it could be argued that subsection (4)(b) is in favour of Sarbanes-Oxley, because it tells us to consider "global character", and what the US is doing. In those circumstances, the provision might be said not to argue in favour of a difference, but to encourage us to conform to the regulations in other jurisdictions. The wording proposed by my hon. Friend the Member for Fareham (Mr. Hoban) would therefore provide greater clarity.

Stewart Hosie: Subsection (4) says:
	"In considering whether a requirement is excessive the Authority must have regard to"
	the circumstances set out, and the end of subsection (4)(b) refers to
	"the international mobility of activity".
	It is crucial that we keep competitiveness and profitability in mind and consider the international mobility of activity, because neither competitiveness nor profitability would be encouraged by the flight of capital. The best way to achieve the ratcheting effect referred to earlier, in respect of light-touch regulation throughout the global markets, is to take account of international mobility, as well as the international nature of activity, and of the money itself. That probably fits in with what the Economic Secretary said in his speech to the Institute of Chartered Accountants in England and Wales in the chartered accountants hall on 20 November:
	"We want to see convergence—but convergence around a principles-based, rather than rules-based, approach."
	In that regard, taking account of the international mobility of activity—and, indeed, money—might be the best way to encourage not only the ratcheting-up of a light-touch approach everywhere, but convergence, which might lead to greater access to capital and more growth in the world's markets.

Edward Balls: I welcome you as Chair of the Committee, Mrs. Heal.
	The drafting of the provision is subtle, and there is no disagreement between Government and Opposition about what we are trying to achieve. We have talked about the paradox of regulating to make sure that we have less regulation. Another paradox is that we wish to protect our regime—the measure is an act of protection—so that we can achieve a non-protectionist approach to ownership. We wish to be open and global rather than protectionist. The amendment is carefully worded, as it refers to
	"the competitiveness of United Kingdom markets."
	It does not refer to institutions, firms or individuals. I accept that we judge the success of a global approach to financial markets by the breadth and the depth of the market, rather than the market share of a particular UK-domiciled firm. A less global, more protectionist view could be characterised as one in which we judge the successful competitiveness of the markets according to whether a domestic firm has a growing market share, even if that leads to a decrease in the depth and richness of global markets.
	We are concerned that if we accept the amendment, its language for competitiveness could be misinterpreted, and it could take us down the protectionist route. I accept the intention behind the amendment tabled by the hon. Member for Fareham (Mr. Hoban), but I fear that reference to the competitiveness of UK markets could be mistaken for a reference to protecting the market share of UK firms, individuals and institutions, which is contrary to what we are trying to achieve. The reference in proposed new subsection (4)(b) to
	"the global character of financial services and markets"
	captures our more open, global approach. The amendment would not add anything to what we are trying to achieve, and we fear that it could be misinterpreted in some circles.
	The hon. Member for South-West Hertfordshire (Mr. Gauke) was concerned about extra-territoriality, and he asked whether the reference to the global character of financial services meant that the FSA would be forced to accept excessive regulatory provision outside the UK by a UK-recognised body. The test in the Bill for excessive regulatory provision is whether such provision extends beyond UK or European Community law, and whether it fails to pursue a reasonable regulatory objective or is disproportionate to such an objective. That test cannot be levelled up just because a foreign jurisdiction applies an excessive standard that it characterises as global. It is not for the foreign regulator to make the judgment, and we will not level the test up. It is for the FSA to make the judgment under the Bill and the rules that it sets. We do not believe, therefore, that there is such a risk.

David Gauke: The provision states:
	"In considering whether a requirement is excessive the Authority must have regard to...the global character of financial services and markets".
	I am grateful for the clarification that the Economic Secretary has provided, but the definition of "excessive" is linked to the global character of financial services and markets, so regulation in another jurisdiction may therefore be relevant in reviewing that character.

Edward Balls: I accept the point that the hon. Gentleman has made, but it is for the FSA to make a judgment as to whether a requirement outside UK or EU regulatory requirements and law is reasonable or excessive. The fact that it has an outside origin does not mean that it is global. The FSA must judge whether a provision would lead to more protected markets and excessive regulation, or to more openness and mobility. Having listened to the arguments and consulted our legal experts, we do not believe that we are running an unreasonable risk of judicial review, and we do not believe that the amendment would strengthen our position. On that basis, I urge the Committee to reject the amendment.

Mark Hoban: I am grateful to the Economic Secretary for his response, both to the amendment and to the contribution by my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke).
	Two points need to be made about the wording of the provision. First, the use of the word, "excessive", and the way in which UK and European legislation are carved out, means that if, for example, someone proposed to impose excessive US-style regulation on the UK, the fact that it originated from outside the UK and the EU should give the FSA an opportunity to rule it out or veto it. That is the thrust of the Bill, and it is an important consideration.
	Secondly, I was not entirely persuaded by the Economic Secretary's arguments about the wording of my amendment, but I will not press it to a vote. His explanation, however, should reassure people that the Bill aims to protect the global competitiveness of the UK capital markets. I am not sure that I agree with his remarks about market share, which is a red herring. The wording of the amendment is sufficiently broad to suggest both the attractiveness of the UK as a place in which to do business and its strengths in comparison with other jurisdictions. However, the hon. Gentleman has provided assurances on Second Reading and elsewhere, so I beg to ask leave to withdraw the amendment.
	 Amendment, by leave, withdrawn.
	 Question proposed, That the clause stand part of the Bill.

David Gauke: I should like to return to an issue that I have raised a couple of times, as I am concerned about vulnerability to judicial review in circumstances with which the Bill is designed to deal. For example, in a takeover of the London stock exchange by a US exchange, a rule could be proposed and the FSA could seek to block it. Under clause 1, the FSA would consider whether
	"the proposed provision will impose a requirement on persons affected"
	and whether the requirement is "excessive". Proposed new subsections (3) and (4) provide guidance about what is excessive. If the proposal
	"is disproportionate to the end to be achieved"
	the FSA can block it. That wording is on the right lines and I do not wish to query it. If that test is met, proposed new subsection (2) states that
	"the Authority may direct that the proposed provision must not be made."
	If there is a challenge to that direction, it will be examined on the basis of the Financial Services and Markets Act 2000, regulatory objectives and the second-tier matters to which the FSA must have regard. The judicial review will not necessarily be conducted on the basis of what is contained in the Bill—that is, the definition of "excessive".
	Put simply, the first test, the "excessive" test, is whether the rule is disproportionate. The next test is whether the rule is appropriate to secure the relevant regulatory objective, which is the protection of consumers. I question whether it is possible that a particular rule change might fail the test set out in subsections (2), (3) and (4)—that is, it might be excessive because it is disproportionate, as defined in the Bill—but the direction made by the FSA would nevertheless be correct, given the objective of securing the appropriate degree of protection for consumers.
	As the hon. Member for Wolverhampton, South-West (Rob Marris) suggested earlier, many of the provisions are designed to protect consumers. My argument is that a rule may be appropriate for the protection of consumers under the FSA test set out in the Financial Services and Markets Act 2000, because the protection of consumers is a regulatory objective, whereas the desirability of maintaining the competitive position of UK markets is not. That was an issue when the Act was passed.
	A measure might meet one of the two tests, but not both. In those circumstances, the very outcome that the Bill is designed to prevent—judicial review—may be available to a US exchange or to the London stock exchange. As I mentioned earlier, there are two ways of addressing that. One is to make competitiveness a regulatory objective. The other is to narrow the definition of protection of consumers in this limited context. The hon. Member for Wolverhampton, South-West raised concerns about the protection of consumers. In this narrow circumstance, to be consistent with the rest of the Bill, there may be an argument for considering that point. I would be grateful for the Economic Secretary's view and his reassurance that the two stages of the test do not raise issues that need to be addressed.

Rob Marris: I am pleased to follow the hon. Member for South-West Hertfordshire (Mr. Gauke), who has taken up some of the issues that I wanted to discuss. The crux of the Bill is in clause 1. The rest is procedural, which we will come to. It is important to get the procedure right, but the principle and foundation of the Bill is in clause 1.
	We must be careful about the apparent love-in on "low regulatory regime". As an individual—I expect most hon. Members would feel the same—I would not invest in the stock exchange in Burma because that is a dodgy regime in a dodgy country. As protection there for me as an investor, whether as an individual or through some mythical company I might own, or as a buyer of the Burmese stock exchange if ever it were for sale, I would not want too little regulation because I could lose my shirt.

Edward Balls: Does my hon. Friend agree that at no point in the debate have we used the phrase "a low level of regulation"? The language that we have used consistently is "proportionate" and "risk based". That allows a high degree of regulation where risk demands it. He may judge that Burma is or is not a place where a higher degree of risk might arise, but we have not spoken of "low regulation". The use of words such as "proportionate" and "risk based" allows the FSA to make appropriate judgments at all times.

Rob Marris: I am grateful to my hon. Friend. I shall check  Hansard, but the term has been used from the Opposition Front Bench and, I think, by my hon. Friend. "Light-touch regulation" is a phrase that has been used, and that rings little alarm bells for me. I wanted some reassurance from the Minister, and I have some.
	Until the hon. Member for South-West Hertfordshire spoke in the stand part debate, there has been little discussion of consumer protection and shareholder protection, which I have mentioned in interventions. Can the Economic Secretary clarify whether the phrases in clause 1(3)(b)(i) and (ii)—
	"it is not justified as pursuing a reasonable regulatory objective"
	or
	"it is disproportionate to the end to be achieved"—
	encompass consumer protection and shareholder protection, particularly the latter,
	"disproportionate to the end to be achieved"?
	If an investment exchange or a clearing house proposed rule changes that the FSA might deem to be excessive, would consumer and shareholder protection be considered if the investment exchange or clearing house stated that the end to be achieved through the tightening of its rules was greater consumer or shareholder protection?
	I am not sure whether "reasonable regulatory objective" would encompass consumer or shareholder protection. That is part of the equation that we must examine. Like other hon. Members, I want London to continue as a thriving premier international market, but I want protection for individual shareholders and consumers and for businesses and organisations, not only because that is right in moral terms, but because London will not continue to thrive as a premier financial location without that platform of regulatory control, so that those who might invest in that market do not fear losing their shirts because of poor regulation. I hope the Economic Secretary can deal with those issues.

Edward Balls: Let me reassure the hon. Member for South-West Hertfordshire (Mr. Gauke) and my hon. Friend the Member for Wolverhampton, South-West (Rob Marris). The tests in clause 1 for "excessive" are whether the regulatory provision goes beyond what is required by UK or EU law and, in addition, either is not directed at securing a proper regulatory objective or the regulatory burden that it would impose is disproportionate to the end that it is intended to secure.
	Under the Financial Services and Markets Act 2000, and therefore in UK law, the FSA is required to have regard to four statutory objectives, which are market confidence, public awareness, protection of consumers and reduction of financial crime, so protection of consumers is one of the regulatory objectives to which the FSA must have regard at all times. However, that is one of four objectives, so the FSA must always balance consumer protection against, for example, market confidence. When we speak of a proportionate and risk-based approach to regulation, that allows the FSA to take a lighter touch approach to regulation in those areas where it believes market confidence can be maintained with a greater degree of risk. Hence, the AIM market is a more risk-loving, less regulated market, but the individual retail consumer going in needs to know that there is less market protection.
	The FSA must consider the four new tests set out in clause 1(4)(a) to (d) in the context of its four statutory objectives. Those four tests therefore inform the FSA in striking the balance between its statutory duties to protect consumers and to maintain market confidence, although it would not have to strike such a balance with regard to that particular example. In our judgment, so long as it has regard to those four points and is conscious of its need to strike a balance between market confidence and the protection of consumers, we think that it will be proof against judicial review in making such judgments.
	That does not mean that the FSA is bound to reject a regulatory proposal for an exchange that goes beyond the UK or EU requirements of the time. If it took the view that a proper regulatory objective was being pursued—for example, investor protection—and in its judgment that objective was not disproportionate or excessive, the FSA could judge, consistent with the four objectives in the Bill and its statutory duties, that the objective was correct and that it was being done in a proportionate way, and it could allow the rule to go through, which should provide some comfort. The Bill allows the FSA to strike that balance, but at the same time the FSA can take action, if it judges that it is proportionate.

David Gauke: I take the Economic Secretary's point about the four points in proposed new section 300A, which is helpful. However, they are merely the first part of the test, which triggers the right of the FSA to make a direction. My point concerns a direction made under proposed new subsection (2), which cannot relate to proposed new subsection (4). The question whether such a direction would be subject to judicial review returns us to the regulatory objectives. Whether the direction is reasonable or compliant with regulatory objectives relates to section 2 of the Financial Services and Markets Act 2000 and the four regulatory objectives mentioned by the Economic Secretary. At that stage, proposed new subsection (4) would not be relevant. Stage 1 concerns whether the excessive test has been breached, and stage 2 is when a direction is made. Would such a direction be reasonable?

Edward Balls: The test of the reasonableness of the directive is whether the requirement is excessive under proposed new subsection (2)(b). Proposed new subsection (4) states:
	"In considering whether a requirement is excessive the Authority must have regard to all the relevant circumstances, including"
	proposed new paragraphs (a) to (d). As on so many occasions in terms of finance, if only Mrs. Gauke were here. Not being a lawyer, I must fall back on the legal advice put before me. It has been put to me that so long as the FSA makes its decision in line with the tests in proposed new section 300A, and that reasonableness is defined as striking a proper balance between market confidence and consumer protection, the FSA will be judged to have fulfilled its obligations under the 2000 Act.

David Taylor: The Treasury has promoted the Bill as a means of protecting the London stock exchange from heavy overseas regulation such as the Sarbanes-Oxley Act. However, the intent of the US legislature was to boost investor and public confidence following the high profile corporate collapses of Enron and WorldCom. Is the Economic Secretary saying that we will undercut the Americans on investor protection? And do the four tests strike the right balance?

Edward Balls: I understand my hon. Friend's point, which we considered in some detail on Second Reading. The US consensually decided that the Sarbanes-Oxley Act would provide proper consumer protection and be consistent with the continued success of its financial markets. We considered that exact issue at the time in the UK, and we were criticised by some commentators for refusing to go down the road of the Sarbanes-Oxley Act. We feared that that approach would damage the competitiveness of our financial markets and that a move towards a more heavy handed, dirigiste, box-ticking approach to regulation would be likely to undermine, rather than to enhance, consumer protection. As I have said to my hon. Friend the Member for Wolverhampton, South-West, a light touch, proportionate, risk-based system requires one to act more decisively when one sees risk than is possible under a more legalistic, box-ticking approach to regulation, which allows one to comfort people that the boxes have been ticked but does not involve the identification of risk.

David Taylor: Is the Economic Secretary saying that the Sarbanes-Oxley Act is a disproportionate overreaction by the American regulatory authorities?

Edward Balls: Today, I had lunch with the US Treasury Secretary, Mr. Hank Paulson, who shared a platform two weeks ago with the chairman of the Securities and Exchange Commission, Mr. Christopher Cox. I think that they both share my analysis of the current dangers of the Sarbanes-Oxley regime, which is that the way in which it has been implemented is both burdensome and insufficiently risk-based and that therefore it does not achieve the initial intention. That is why the SEC, with US Treasury support, is currently consulting on how the implementation of the Sarbanes-Oxley Act and the wider corporate governance regime could be enhanced, reformed and in some way lightened in order that it can become more risk-based in the future. I am happy to rely on the expertise of the US authorities rather than commenting on the sensibleness or otherwise of the regulatory regime.
	Finally, the hon. Member for Fareham (Mr. Hoban) has asked whether we have inadvertently come across a flaw in the current regime, or at least that we have had the benefit of realising the need to act, because a change of ownership might allow us to take a power to block excessive or disproportionate rule changes without any change of ownership. However, at no point has the FSA put it to me that it has concerns about the current rule books of the current exchanges or changes to those rule books. In the initial discussions in May and June, no one suggested jumping in to impose a new burden on existing exchanges. As I understand it, that fear did not exist within the FSA. We have looked in detail at how to address that concern, and the only fair way to do so that is legitimate and that applies across the piece would be to cover all exchanges, which is the approach that we are taking.

Mark Hoban: I am also not aware of any concern about the existing rule books, and the strength of the UK capital markets has demonstrated their effectiveness. Looking at the topic in the context of the potential change of ownership of the London stock exchange has done us a service in pointing out an opportunity to fine tune the regulatory environment for exchanges and clearing houses, and perhaps we should be grateful for that.

Edward Balls: I was not trying to suggest that the hon. Gentleman had made the opposite point to me. He has wondered whether the matter has done us a favour. The truth is that no one considered that that favour was necessary until now. The issue might arise in future, and if it does, the fair way to resolve it would be for the veto power to apply to all excessive or disproportionate rule changes by any UK exchange, regardless of change of ownership. Clause 1 achieves that objective in a watertight and well-understood way, and I therefore commend it to the House.
	 Question put and agreed to.
	 Clause 1 ordered to stand part of the Bill.

Clause 2
	 — 
	Procedural and other supplementary provisions

Mark Hoban: I beg to move amendment No. 7, in clause 2, page 3, line 20, at end insert ', and
	(d) specifying those persons which the Authority believes may be affected by the proposal.'.
	The amendment concerns consultation, how the FSA will seek to use its new powers, and whom it will look to when thinking about the consequences of any rule change. People in City institutions have told me that the Bill should ensure that the FSA takes account of the concerns of all market users. There is a sense that historically when changes have been proposed to the rules of exchanges, consultation was predominantly with the sell side—that is, market participants such as major investment banks, who raise capital on behalf of their clients, acting as sponsors of new issues of shares. It is clearly in their interests for the market to be efficient.
	However, no market is one-sided. Investment banks need fund managers and other investors to buy shares; they too have an interest in the operation of markets and their views should be considered as well. For example, an exchange might propose a rule change that would make the raising of capital easier but lessen the protection afforded to investors. Unless the consultation process included the buy side as well as the sell side, there would be a risk that the voice of the buy side would go unheeded, leading to loss of confidence in the market and an absence of buyers. That goes back to the point raised by the hon. Member for Wolverhampton, South-West (Rob Marris) in the previous debate. This is not about low regulation but about getting the regulatory balance right between the buy side and the sell side and ensuring that the regulation not only makes it easy to raise capital but gives investors confidence in the market. One way to do that would be to ensure that when rule changes are consulted upon, all participants in the market are consulted, not only the sell side.

Stewart Hosie: I agree with the hon. Gentleman's intentions. However, let me give an analogy with the planning system, where there is no third-party right to appeal and it is limited to those directly involved. Is not there a danger that his amendment could be interpreted as seeking to limit those who may make representations instead of widening the process as much as possible?

Edward Balls: In any matter where consultation is required it is important to ensure that everybody is properly consulted, and that is what we have done with the Bill. I know from my experience of going through the process involved in the markets in financial instruments directive that it is important to listen to the buy side and the sell side. The fact that the London Investment Banking Association, to give one example of a trade organisation with buy and sell side representatives, has endorsed the Bill suggests that both sides are happy with our general intention. There have tended at times to be differences of view between the exchanges and some of the wider City participants as to whether the role of the FSA should be stronger or weaker in this regard.
	It is important to consult widely in a way that makes it clear that all sides are being listened to, and I am sure that that will be the FSA's intention. It is not for me to set out in detail how it will go about planning those consultations, nor is it necessary for the Bill to specify one particular aspect of the consultation process concerning which persons are affected. That is just one of a wide range of issues that it will need to consider as part of its consultative process. Today's letter by John Tiner gives full assurance to the exchanges and to the City more widely that the consultation process will be substantial. The Bill would not be enhanced by picking out and adding this aspect, nor would it change things either way. I would suggest that we leave the Bill less cluttered and reject the amendment.

Mark Hoban: The Minister is right to say that we should have clear, straightforward legislation. However, it was important to use this opportunity to get across on the Floor of the House the importance of full consultation and to try to ensure that when potentially excessive rule changes are made by exchanges there is proper representation of all market users and all those with an interest in the success of exchanges.
	I beg to ask leave to withdraw the amendment.
	 Amendment, by leave, withdrawn.

Mark Hoban: I beg to move amendment No. 9, in page 4, leave out lines 10 and 11.
	Again, the amendment deals with a concern flagged up by people in the City. The Bill carves out from its scope overseas investment exchanges. The following scenario has been suggested to me; I do not know whether it is feasible. A UK exchange could be acquired by a company based outside the EU, and the acquirer could then decide that it wanted to close down the UK exchange and encourage members to transfer their listing to an overseas exchange. As a consequence, the provisions in the Bill would no longer apply and the additional regulatory burdens of, say, Sarbanes-Oxley—it could be any other regulation—would affect companies that hitherto had been listed under the UK investment exchange. I am looking for reassurance that an acquirer of a UK exchange cannot compel companies listed on it to move to a US or other non-EU jurisdiction and thus avoid the provisions of the Bill.

Rob Marris: Will the hon. Gentleman give way?

Mark Hoban: I was about to sit down, but I will give way in the spirit of consensus that has characterised the debate.

Rob Marris: I am slightly confused by the hon. Gentleman's remarks. On Second Reading, he seemed to be against extra-territoriality, but his amendment suggests that he is in favour of it. Could he explain that contradiction, or have I misunderstood him?

Mark Hoban: The hon. Gentleman is, as ever, sharp in pointing out potential contradictions. I am trying to highlight a concern that has been raised with me, to understand the thinking behind the carve-out, and to ensure that protection remains in place.

Edward Balls: I think that the answer to the hon. Gentleman's question is no. I hope that that gives him sufficient reassurance. As he knows, there are nine UK recognised bodies and 12 overseas recognised bodies. The latter tend to be involved in business that deals with nothing more than placing a trading scheme. They are regulated in the countries where they are based, but because of the obligation on recognition requirements, they have to provide their users with broadly equivalent protection to that provided by UK recognised bodies. The FSA therefore does not have to judge the regulatory provisions of those overseas recognised bodies. It would not be consistent with our EU obligations to do so.
	The only way in which the effect of the new provisions could be avoided by using overseas investment exchanges and clearing houses, or other EU-regulated markets, would be by transferring and relocating the business of a UK investment exchange to such a body. That would at best be very difficult to do, and a lot of business would be lost. I hope that that gives the hon. Gentleman some comfort. That was probably the long way of answering his question. The short answer is no.

Mark Hoban: I am always grateful for a longer answer from the Economic Secretary. Now, when people raise this question with me, I shall be able to give them a more informative answer, rather than simply saying no. With that, I beg to ask leave to withdraw the amendment.
	 Amendment, by leave, withdrawn.
	 Question proposed, That the clause stand part of the Bill.

Rob Marris: I want to make a few brief remarks, first on the deemed refusal periods in proposed new sections 300C and 300D, in lines 8 and 28 on page 3 of the Bill. The hon. Member for Dundee, East (Stewart Hosie) referred earlier to planning law, and I am sure that hon. Members will be familiar with the concept of deemed refusal in planning law. In England and Wales, although I am not sure about Scotland, if the local authority does not make a decision within five weeks—it used to be six weeks—it is deemed to be a refusal. There are similar duties on the FSA in the Bill, and I congratulate the Government on putting them in to try to speed up the process of getting agreement to rule changes so that it is not burdensome for business.
	I want, however, to take up a point made earlier by my hon. Friend the Financial Secretary regarding the explanatory notes to the Bill. He was helpfully trying to clarify the intervention that I had made on my hon. Friend the Economic Secretary about the missing link in the middle of the process. This relates to what I call the representation period, in contradistinction to the consultation period. The consultation period is what the regulatory body will have; the representation period will be set by the FSA, and is set out in lines 19 and 20 on page 3 of the Bill.
	The reason I am raising this matter is that the explanatory notes do not say—because the Bill does not say—how long the representation period should be. Note 14 on page 4 of the explanatory states:
	"Section 300D...sets a period within which the FSA must take a decision about a proposal".
	But it does not specify the number of days. My understanding is that the Bill could be amended in the Lords and I would urge my hon. Friends the Ministers to consider introducing an amendment to line 20 on page 3 of the Bill, so that proposed new section 300D(2)(c), which now reads
	"specifying a period during which representations with respect to that question may be made to it",
	would continue with the words "which period shall not exceed 60 days". Similarly, in line 21, proposed new section 300D(3) reads:
	"The Authority may extend the period for making representations",
	and I believe that it should then say something like "by no more than 28 days".
	I appreciate that different proposals will have different gravity, and that the FSA might need longer for some than others, but proposed new section 300D(3) already contains the provision to extend what I call the representation period. So the Bill contains a representation period, with an unspecified number of days, and the ability to extend that period, again by an unspecified number of days. Yet in line 39 on page 2 of the Bill, proposed new section 300C(2)(a) defines the initial period as one of 30 days. So the Government are clearly not averse to putting a numerical or diurnal value on that period, but that is not the case for this middle bit, the representation period.
	I would like reassurance from the Minister either that a specified period will be put into the Bill or that clear guidance will be given to the FSA on this matter. Otherwise, the FSA could decide to take six months, and a change in rules that a regulatory body deemed necessary—it would not go through all this rigmarole if it did not deem it necessary—could get held up for rather a long time. The FSA might say, "We do not have the resources to deal with this", or "We do not think it is that important, so we will set a long representation period." Conversely, if the regulatory body wished to make an extremely important change as a matter of urgency, the FSA might say, "This is a very important change, so we must have a long representation period in the middle, because we need to consult so many people and do so much work on it." I urge the Minister to have another look at that missing link in the middle, the representation period, and I hope that amendments can be tabled in another place to specify the number of days. Alternatively, I would like reassurance that strong guidance will be issued to the FSA on that point.

Edward Balls: My hon. Friend has made a most interesting point and admission. During the passage of the Finance Bill, many people believed that its explanatory notes had been written by him, so for him to point out a drafting error made by others is novel.
	We have specified a 30-day period, which will apply from the notification by an authority that it is making a rule change, which will allow the FSA to consider that rule change. If the FSA made no judgment during the 30 days, the rule change would go through by default. However, proposed new section 300D(2)(c) deals with what we believe will be the unusual circumstances in which the FSA calls in a regulation and considers disallowing it. We expect such cases to be the exception rather than the norm. We mentioned earlier, in reference to the Sarbanes Oxley case, the importance of not repeating the same mistakes by rushing in too fast. My guess is that the markets and the exchanges might consider it an advantage that the FSA has the discretion to choose the period over which it consults, so that it does not make a wrong decision.
	If we feared that the FSA was likely to take a disproportionate, heavy-handed or costly approach to the implementation of this power, we might have reasons to be concerned. But, as John Tiner's letter makes clear, the FSA will use the power only if it is justified as being proportionate, if the benefits exceed the costs, and only after consultation. The letter also says:
	"As you know, we exercise our supervisory decisions independently within the framework of the principles of good regulation set down"
	in the Bill. I do not believe that there is a need for the House to fetter the discretion of the FSA in this matter by arbitrarily curtailing the length of consultation that it might want to take, given that there might be circumstances in which it would want to take more time. We know that it would be motivated by a desire to be proportionate and to ensure that no unnecessary costs would be incurred.

Rob Marris: My hon. Friend talks about fettering the FSA's discretion, and I understand that point. However, its discretion is fettered in the initial period, because the Bill specifies a period of 30 days on two, if not three, occasions.

Edward Balls: My hon. Friend is absolutely right. This will all become much clearer when the FSA consults on the rules that will apply in this area, the provision for which is made in the Bill. We want to make it clear to the exchanges that, in the majority of cases relating to rule changes, even if a rule requires consultation under the FSA's rules that consultation will normally happen in a speedy manner. There might, however, be exceptional circumstances in which the FSA calls in a rule and wants to ensure that its judgment is right. In those circumstances, it is not necessary to fetter its discretion. There is a principled reason for specifying 30 days in one part of the Bill but not to fetter its discretion on such a rare occasion.
	My advice to my hon. Friend and the House of Lords is to think carefully about whether we need to impose extra regulatory burdens on the FSA in such a way. We should trust the good intentions of the FSA as set out in John Tiner's letter, and allow it, in exceptional circumstances, to take the time that it needs to make the right judgment. On that basis, I commend the clause to the House.
	 Question put and agreed to.
	 Clause 2 ordered to stand part of the Bill.
	 Clauses 3 and 4 ordered to stand part of the Bill.

Clause 5
	 — 
	Short title and commencement

Question proposed, That the clause stand part of the Bill.

Rob Marris: This matter has been adverted to earlier, and I wonder whether my hon. Friend the Economic Secretary can provide further clarification on clause 5(2), which relates to the coming into force of the Act. Rules are to be made under the Act, and I am not quite sure of the timetable. Will he comment a little on that provision, which is slightly unusual although not unknown in parliamentary drafting?

Edward Balls: I am grateful to my hon. Friend for the opportunity to make the provision clear. The clause provides for the legislation to come into force on the day after Royal Assent. As I said on Second Reading, that means that the new obligations will apply to regulatory provision proposed but not made before commencement, as well as to new regulatory provisions proposed after commencement. By providing for commencement and the powers coming into force in that way, we prevent any problems about a rule change proposed in the gap between Royal Assent and commencement. More generally, a waiver power is provided for 12 months. Through a discretionary act, the FSA can waive, where it judges appropriate, the right to call in certain kinds of rule changes while it goes through the more onerous statutory consultation processes necessary to draw up its rule-making power under the Financial Services and Markets Act 2000. That allows us to move speedily and to have a proper consultative process for the rule book. I hope that I have made the position clear.
	 Question put and agreed to.
	 Clause 5 ordered to stand part of the Bill.
	 Bill reported, without amendment.
	 Order for Third Reading read.

Edward Balls: I beg to move, That the Bill be now read the Third time.
	Let me start by thanking you, Madam Deputy Speaker, and hon. Members on both sides of the House for the detailed and substantive debate that we have had on all stages of the Bill this afternoon. We have addressed many of the concerns understandably expressed by some parts of the City on the detail, and have shown that we have thought through the clauses. Our wide-ranging debate has established—I said at the beginning that I hoped it would—that there is a consensus about how the national interest should apply in this case.
	First, the national interest is to preserve the global and open approach to ownership in the City of London, which has been the hallmark of the City not just for the past 10 years but since the big bang and before. We have all agreed that the right position for Britain, from the point of view of investment, jobs and the long-term future of the City, is to welcome foreign ownership and investment from around the world, including into our exchanges, and not to try to establish protectionist barriers.
	Secondly, the principle has been established that it is right and legitimate for Government to intervene to protect our principles-based and proportionate regulatory regime. We are intervening not to regulate, but to ensure that we prevent excessive regulation being imported into the UK, and not to make sure that we have a protectionist or narrow view of the City's future but to make sure that the global, outward-looking City can continue to prosper in future.

David Gauke: On Second Reading, I raised the issue of democratic accountability, which, as far as I have heard, has not been picked up. An important and sensitive decision would be made by the FSA without any accountability to the House or, indirectly, to a Minister, who would be accountable to the House. Will the Economic Secretary give his views on that point?

Edward Balls: I am grateful to the hon. Gentleman for that intervention. This Bill amends the Financial Services and Markets Act 2000. It enshrines a principle-based and risk-based approach to regulation. It gives the FSA considerable discretion and independence, within an overall framework set in legislation and agreed by the House, for which Ministers of the Treasury are responsible to the House. All the protections and safeguards put into the Financial Services and Markets Bill, when it was debated extensively in Committee and in the House some years ago, apply equally to this set of what are essentially additions to the Financial Services and Markets Act 2000. To the extent that there was a concern, that would be about the wider financial services and markets approach. The principles-based approach pursued by the FSA has been not only successful but judged to be open and transparent. In terms of proper scrutiny of its decisions, we got the balance right in the original Financial Services and Markets Bill.
	One view of the City of London's success is, I believe, rather pessimistic. According to that pessimistic view, London is succeeding because of others' failures, and because some of our European partners have taken too restrictive an approach to financial services in their markets. Similarly, it is argued that London's recent success is not because of our strengths but because of errors made in the US in particular in relation to corporate governance standards and Sarbanes-Oxley. That pessimistic view moves on to the conclusion that, if the European single market gets completed because we win the argument for reform in Europe, London's standing will somehow be undermined, or that if the US acts to reform the Sarbanes-Oxley or wider regime, that will take away our competitive edge.
	That view is far too pessimistic. The City of London's reputation has been built not over two decades but over 300 years. The tradition and integrity of our markets, and of our accountancy and legal professions, underpin the City of London. We have established a reputation for talent and expertise as well as a depth to our markets that is respected all around the world—again, a reputation that has been built over decades. The reforms of the big bang, which led to the explosion of foreign firms and new talent coming to London, were introduced well before any changes in the US corporate governance regime. In my judgment, we should be confident about London's success—our skills, the cluster of London markets, our integrity and our reputation. We should see reform in Europe as an opportunity for us to expand into new markets in France, Germany and other European countries. Similarly, if the United States does decide to reform the Sarbanes-Oxley regime—in terms of its implementation or more generally—we should see that as an opportunity. As we know, a number of United Kingdom firms and auditors are currently burdened by the regime to some extent, and it would be in the interests of not just the United States but the global economy for some of the reforms to be enacted.
	We should welcome the speeches being made by Hank Paulson and by Securities and Exchange Commission chairman Christopher Cox. We should be confident that a successful global New York market and a successful global London market can succeed and prosper in the future, side by side. The rise of new financial centres in Shanghai, Hong Kong and Dubai, and also in the rest of Europe, gives London an opportunity to build new partnerships and win new business.
	I am not pessimistic about the City of London. I think it is right for us to act to protect our regulatory regime, but we must do so with the right kind of risk-based, proportionate regulation and a continued focus on investing in skills. We must bring the best talent from around the world to London and to our other financial services in the United Kingdom, and encourage others in Europe and the world to move in our direction—the direction of a more risk-based, proportionate approach to regulation.
	I do not believe that London will be set back; I believe that it will continue to prosper. We can win more jobs and more investment, and make London the global financial centre of a globally integrating world. It is with that intention and that commitment that I hope the House will support the Bill tonight.

Mark Hoban: I echo the thanks expressed by the Economic Secretary in his opening remarks.
	The Bill is important to the future of the City. As the Economic Secretary pointed out, it is not about tackling foreign ownership. Since the big bang the City has thrived as a result of openness and our ability to allow what were venerable British names to be bought by overseas companies. That has enriched and strengthened the City. I am sure that when the Economic Secretary meets those in City institutions he recognises, as I do, the international diversity of both ownership and personnel. That is one of the great assets of the financial services sector, and it is what I think has made the sector so successful in a global economy. It has also led to opportunities for the City in that global economy: existing relationships with countries overseas can be exploited and developed still further.
	There is, however, a legitimate reason for the Bill. There has been widespread concern about the impact of United States regulation if a United States exchange acquired the London stock exchange, and in recent months there has been considerable debate on the subject in the City. That concern is not based on prejudice or on some narrow interest; it reflects the experience of people who work in the City every day, and who have a creeping sense of extra-territoriality entering the regulatory regime. It is a genuine concern that should be addressed.
	When people first began to ask how we could protect the regulatory environment from which the United Kingdom financial services sector benefits, a host of mechanisms were proposed to ring-fence the regime, including adjustments to the ownership structure post-acquisition in the stock exchange. However, it was clear to most participants in the market that none of those mechanisms would be particularly effective in recognising and retaining the strength of the regulatory regime that we have today. It was, I think, a recognition of the failings of those alternative mechanisms that led to the Bill, which provides a vital opportunity to safeguard the regime. It sends the clear message that we are keen on foreign ownership of UK-based businesses, but also keen to maintain the strength of the regulatory sector.
	The hon. Member for Wolverhampton, South-West (Rob Marris) asked whether we were talking about low regulation. I do not think that we are, on either side of the House. We are talking about the right level of regulation—proportionate regulation that responds to the level of risk and is based on principles, not on detailed rules. That type of regulatory regime has stood the UK in good stead in recent years, benefiting both consumers and those who supply financial services products.
	I agreed with the Economic Secretary's closing remarks. We should be optimistic about the future of the financial services sector. I am always impressed by the people whom I meet in that sector, who are full of ideas about how to exploit markets, come up with new products and take advantage of the changing world in which we live. However, in recognising their skills, talents and innovations, we cannot afford—and the Economic Secretary cannot afford—to neglect the sector. We cannot say "The job is done tonight", because the job has not been done tonight. More work must be done to maintain the competitiveness of the UK financial services sector.
	We must think about skills, tax, infrastructure and regulation. We cannot assume that one summit every 10 years is enough to tackle those issues. We must continue to safeguard the future competitiveness of the sector, and think hard about what it needs and how Government and politicians can strengthen it. We must not neglect it, because unless we look after it and are concerned about how it develops, it will not continue to thrive on the basis of its talents alone. We must make a collective effort to safeguard its future.
	I believe that the Bill will play an important role in safeguarding the sector's future, and in taking the regulation of exchanges into a new dimension in a new way. I hope that, as a result, more businesses will continue to come to London to raise capital and use our capital markets here in the United Kingdom.

Vincent Cable: I welcome the positive conclusion that we have reached. In my contributions, I had initially intended—as the Financial Secretary rather kindly put it—to add a bit of grit to the debate while also educating myself in some of the issues, but what others have said has taught me things about matters that were not entirely clear to me at first. For example, the hon. Member for South-West Hertfordshire (Mr. Gauke) explained how the Sarbanes-Oxley legislation might be inadvertently introduced into United Kingdom rules as a result of private litigation, and that helped me to understand the process.
	I think that one useful contribution I made was to prompt, or provoke, the Economic Secretary into a helpful intervention that cast new light on the whole subject. Press comment on takeovers has been very controversial and the language has often been protectionist, but the Economic Secretary told us on the basis of his own conversations that the American exchanges were relaxed about—indeed, supportive of—the Bill, which would not inhibit a takeover bid from them on normal commercial principles. That was a considerable clarification.
	The Economic Secretary could, however, increase my satisfaction quotient from 95 to 100 by dealing with one of my questions which has not yet been answered. Although we debated at length the possibility that American legislation would have a detrimental effect, intentionally or otherwise, and how the Bill might deal with it, there remains the problem of what might happen if a European, perhaps a German, exchange acquired a British exchange and took action in relation to, for instance, the LIFFE or the alternative investment market that proved detrimental. Might not the companies involved argue that they were protected by single-market legislation, and might the Bill therefore not be effective in that context?
	The hon. Member for Fareham (Mr. Hoban) made a helpful point. The Bill deals with one aspect of the much bigger issue of extra-territoriality; we dealt with the human dimension involving the NatWest Three. We were not given a great deal of help on that from the Government, but it remains a live issue, and some of the legislative aspects have yet to be addressed. Having heard the debate and received reassurances, however, I welcome this step forward.
	 Question put and agreed to.
	 Bill accordingly read the Third time, and passed.

PETITIONS

Cycle Helmets

Peter Bone: I wish to present to the House of Commons a public petition from the people of Wellingborough and surrounding areas. The  Wellingborough and Rushden Herald and Post, the excellent weekly newspaper for Wellingborough and Rushden, always stands up for the local community and campaigns on important issues. It has recently been highlighting the number of children injured while riding their bikes. The petition has developed out of that outstanding campaign.
	The petition declares:
	Although the Highway Code states that under the rules for cyclists 'you should wear a cycling helmet which conforms to current regulations', it is not compulsory. Last year 5691 children were injured whilst cycling. Of these 28 were killed.
	The Petitioners therefore request that the House of Commons charges the Secretary of State for Transport to bring in proposals to make it compulsory for children to wear a cycle helmet when riding their bikes.
	 To lie upon the Table.

Public Toilets (Thundersley)

Bob Spink: I rise to present a petition on public toilets, which are most important, particularly to people with medical issues, those with young families and the elderly. I have campaigned long and hard for decent provision of public toilets from the local council across all of Castle Point. That provision is a mark of the level of public service provided by the council for the people, and the people deserve a decent public service.
	The petition states:
	People living around Thundersley declare that we the residents of South Essex and surrounding areas call for the reopening of the Thundersley public toilets, which remain closed, locked and padlocked, whilst other areas within Castle Point such as Hadleigh, retain the use of their public facilities, and notes that a new Neighbourhood Watch initiative aims to solve the problem of vandalism to public property through more visible police presence, and should protect our children and the public from inappropriate use of public toilets.
	The petitioners therefore call on the House of Commons to request that the Government impress upon Castle Point Borough Council the need to reopen the Thundersley public toilets and to ensure public safety, as well as bringing to justice those who use inappropriately or would seek to deface public property with the full force of the law.
	 To lie upon the Table.

LOCAL GOVERNMENT REORGANISATION (SOMERSET)

Motion made, and Question proposed, That this House do now adjourn.— [Kevin Brennan.]

David Heathcoat-Amory: Somerset is again a target for local government reorganisation. The Liberal Democrat-controlled Somerset county council voted to apply for unitary status. That means that it wishes to abolish the five existing district councils and consolidate all power, finance and services at county hall in Taunton. That would create the biggest unitary authority in the country, with a population of more than 500,000 people. I and my hon. Friend the Member for Bridgwater (Mr. Liddell-Grainger)—who I am happy is present—believe that that would create a remote, unwieldy and undemocratic structure. Furthermore, the costs of reorganisation would create another burden for the long-suffering council tax payers of Somerset.
	Unfortunately, it seems that the Government have been beckoning Somerset down that path. Discussions at official level have been taking place for many months between the relevant Department and officers of the county council to prepare the way for that bid. Most elected councillors have been excluded from those discussions. That is the opposite of open government, and it is frequently a way that bad decisions or ideas take root.
	The trigger for the bid was the publication in October of the Government White Paper on the future of local government. It was rather a disappointing document in many respects, but its aim was simplification. In the foreword to the White Paper, the Prime Minister said that it
	"commits the Government to a radical simplification of the existing system",
	but the White Paper's proposals seem to me to be far from simple. There is endless talk of community and partnership and so forth, as though the simple repetition of those words somehow gives them meaning. There is also a bewildering array of initiatives. Each area of the country is to be encouraged to have a local strategic partnership—an LSP—a local area agreement, a sustainable community strategy, a local development framework and probably a multi-area agreement as well, and on top of that a range of regional strategies. That is not simplification; it is completely baffling to the public and shows what happens when the official mind collides with the need for local democracy.
	From that fog of strategies, partnerships and acronyms emerges a pattern of what the Government are pursuing for local government. They are going for big unitary authorities wherever possible, with huge regional authorities above them. They are joined in support for that plan by the Liberal Democrats, who of course like unitary authorities. That is why Somerset Liberal Democrats have applied for it, and it has long been Liberal Democrat policy to go for regional government. A rather unhealthy Lib Dem-Labour coalition is developing to carve up the local government map of England to suit such a structure. When the Minister replies to the debate, I would like her to confirm that that is indeed the strategic aim that is buried in the White Paper. That would be a disaster for Somerset, and the regional structure that we have—that we have to live with—is already highly damaging.
	The south-west region is a completely artificial entity stretching for hundreds of miles from the tip of Cornwall. The South West regional assembly is a self-important talking shop that absorbs a great deal of time and effort but achieves very little. The South West of England Development Agency has shown complete insensitivity to the needs of local businesses in my constituency. The Government should remember what happened to their plan for an elected regional assembly for the north-east, which was crushingly defeated by 78 per cent. in a referendum a few years ago. These big units might look fine from Whitehall, but the public do not like them. Whitehall loves these units because there are fewer people to talk to, it can control them more easily and they look good on a small map of England, but they are the death of local democracy.
	If we want to promote the vitality of local government and to strengthen local democracy, we should be doing the opposite—devolving power to smaller units. Very occasionally in the White Paper, the Government seem to be saying the same thing. With their usual jargon, they talk about "empowering local communities". How can they empower local communities when they are removing the tier of local government—district councils—that is closest to those local communities wanting to be empowered? It is understandable that the Liberal Democrats want to destroy the district councils, because they usually do not control them. In Somerset, they have only one of the five councils. They do temporarily control Somerset county council, which is why they want to concentrate power at county level, but the county council has not earned the right to monopolise local government in Somerset. In my area, I find that Mendip and Sedgemoor district councils are more responsive to my constituency cases.
	Until quite recently, the county council did not even know how many people it employed. It took many years work by the opposition Conservative group to find out how many people were on the payroll. The number has been going up pretty steeply every year, which is another problem, but the fact that the county council did not know how many people it actually employed shows a degree of ineptitude.
	There have also been a number of fiascos, which we have lived with over the years. We remember the fiasco whereby more than £2 million of ratepayers' money was spent putting up a lot of unnecessary and ugly road signs, which did very little for road safety and had to be taken down again at vast cost. I could go on—there have been many other problems over the years. I am quite tolerant of local government making mistakes, but the county council seems to be very slow in correcting them. Meanwhile, the council tax has gone up every year way above the rate of inflation, and the debt with it. There is a problem for the Government; if the unitary bid succeeds, the county council will be exporting this financial structure of high taxes and high debt to the rest of the county, replacing many of the more prudent district councils.
	Who is going to pay for this reorganisation? The up-front costs are always huge. Staff have to be paid off or relocated, buildings have to be bought and sold, and building leases have to be terminated. There will be bigger salaries and more people employed at the centre. Then there is the cost of preparing the bid itself, which is already diverting officers' and councillors' time away from doing what they are elected and paid to do—to deliver good services to voters. Instead, they are engaged in an expensive and time-consuming bid for unitary status. I should be grateful if the Minister addressed the question of what is going to happen when the costs escalate and the council tax goes up even more, or other services get hit. Is that in line with the ambitions of the White Paper? If not, the Government should stop the bid dead in its tracks.
	Of course, we have been here before. Those of us with long memories remember the Banham commission of the 1990s, which correctly recommended the abolition of Avon, but when it moved on to the part of Somerset that I have been talking about, it got into a most frightful muddle. It first recommended a unitary county structure exactly the same as the one being bid for now. On closer inspection, that was shown to be a mistake, so it changed its mind and recommended a unitary structure based on three smaller units. On yet closer inspection, that proved to be unworkable, as well, and the whole thing was abandoned.
	More recently—the Government, should have fresh memories of this—tried a merger of the police forces in the south-west, which again proved unworkable in practice. That, too, has been abandoned. A great many politicians and officials have worked very hard to try to reorganise the south-west, and Somerset in particular, as regards government and the delivery of services, but it just does not work. So I say to the Government: stop this bid now. It is unwelcome, unnecessary and undemocratic. The districts—certainly the ones under Conservative control—are willing to work more closely with each other and the county council to improve services. There is nothing static about local government and it can always be improved, but the solution is not complete revolution in the familiar structure that is recognised and appreciated by most local people.
	I would be very grateful if the Minister answered my final question: who will decide the bid? The invitation to bid document rather coyly says, using the usual jargon, that if it is to succeed, it must be
	"supported by a broad cross-section of partners and stakeholders".
	That is frankly not good enough. It is not the partners and stakeholders who will pay for it all or whose democracy will be undermined; it is the public—the voters—who must decide. In other words, we need a referendum if the issue is to be decided democratically.
	The Deputy Prime Minister said in evidence to a Select Committee when asked about a similar matter:
	"if you want to have a unitary then you can have a ballot, discuss it with the people, but if you want it, fine."
	If we can interpret his slightly mangled syntax, he is promising a referendum. He was then challenged further by my hon. Friend the Member for Mole Valley (Sir Paul Beresford) about what would happen if the people did not want a unitary structure. In reply, the Deputy Prime Minister said:
	"They will vote presumably for that".
	He confirmed that people will have a vote. I presume, therefore, that that is Government policy. The Deputy Prime Minister was not speaking for himself, but for the Government, so unless there has been a change that we have not noticed, the Government are still committed to public votes on unitary status. That must happen, because the whole exercise is not about the powers of politicians, but about serving the public better. We are talking about their local authorities and their counties, so it must be their vote that decides the matter.

David Heath: I congratulate the right hon. Member for Wells (Mr. Heathcoat-Amory) on securing the debate. I had hoped that we would have heard a more reasoned exposition of the arguments for and against reorganisation of local government in Somerset. The people of Somerset certainly deserve a better structured debate than we are likely to have following the introduction from the right hon. Gentleman, who took a somewhat partisan view of the circumstances that obtain in the area. The so-called temporary Liberal Democrat control of the county council has lasted for most of the 22 years since I took control as leader way back in 1985. The right hon. Gentleman seems to wish, forlornly, that his party had control of the county council again, and perhaps he thinks that the reorganisation is one way to achieve that objective. I have to say that he is doomed to disappointment.
	What we should be looking at for Somerset is efficient and effective local government which costs the minimum that is consistent with having proper local accountability. That should be the basis for any model of local government reorganisation. A further and very important factor in the context of Somerset is that people do not want to be told that they no longer live in their county. The great mistake that the then Conservative Government made in abolishing part of Somerset and creating the hybrid county of Avon—I remember it well—was to tell people not that their dustbins would in future be collected by a different local authority, but that they no longer lived in the county in which they had grown up and which was part of their cultural and historical heritage. That seems to be an enormous mistake.
	I shall end my opening remarks by saying that the Government have not yet got to grips with one other important factor: the role of parish and town councils. They are the building blocks of local government, and the Government have not set out how they will fit into any structure that they may propose.
	I agree with the right hon. Member for Wells that we have been here before, and I still bear the scars of the Banham review. However, he omitted to say that it was set up by a Conservative Government—in the person of Michael, now Lord, Heseltine—with the express intention of abolishing county councils and introducing unitary authorities in every part of England.
	The Banham commission got to grips with that work, and it shows what a sad person I am that I should have in my office the minutes of Somerset county council committee reports of 20 February 1991. The resolution considered that day was to authorise the committee to formulate and express views on the future structure, function and funding of local government in Somerset on behalf of the county council. That was the starting point for the bid to become a unitary county authority. Who was in power in county hall at the time? The Conservatives were. There has been a complete change of attitude by that party, and one wonders why. Could it be opportunism? I suspect that it might be.
	I turn now to what the Government propose. At the outset, I should tell the House that I have not yet formed a firm view about what would be the right outcome for the people of Somerset. I suspect that decisions about the lines to be drawn on the map should not be made by me, or by the right hon. Member for Wells, or by people in county hall or in the district council chambers. It is for the people of Somerset to decide what is the right answer.
	Moreover, I have significant criticisms of the process in which the Government are engaged. First, the reform is being introduced with reckless speed given that, if it goes ahead, it will affect the way that Somerset is governed for a long time. Secondly, I am very concerned about the lack of consultation. I do not buy the argument that the consultation is with stakeholders. As far as I am concerned, the word "stakeholders" in this context includes every person in the county of Somerset who has a view on the matter. I do not believe that the consultation presently proposed is on that scale.
	My third criticism has to do with the fact that the proposed reform is to be carried out within the current boundaries of the administrative county of Somerset. I shall return to the matter later in my remarks, but the proposal seems to me totally illogical for the governance of the county.
	What is the outcome that we should be looking for? I do not want to prejudge what the structure of local government in Somerset should be or will be, but I insist that we should show respect for one another's views, because no one answer is going to be the right answer. A perfectly strong argument can be made for the present three-tier system. It has the benefit that, while strategic decisions are taken at one level, there is also a much more local district council.
	Yet the structure has both merits and demerits. For instance, people in Somerset pay for six chief executives, and there are six different offices. The right hon. Member for Wells was happy to praise Mendip district council, whose present offices are the most modern in the county. However, they are apparently not sufficient for the council's needs and I understand that it is thinking of building a whole new set. I am not sure that that is justified by the functions that the district council carries out.

David Heathcoat-Amory: The hon. Gentleman worked in local government for many years, and he has also been a Member of this House for a further period. He says that he has still not made up his mind about how Somerset's local government should be structured. I have one simple question for him: does he support the bid by his colleagues in Somerset county council for unitary status, or not?

David Heath: The right hon. Gentleman will just have to wait until I develop my speech. Does he believe that we should operate local government in Somerset in the most effective and efficient way, which consumes the least amount of resource to achieve local accountability? His comments suggest that he does not believe that, because he is wedded to the idea that temporarily—to use his word—four of the district councils have a Conservative majority, which seems more important to him than having effective governance.
	In my town of Frome, which is in Mendip, the district that my constituency and that of the right hon. Gentleman share, there are three county councillors, nine district councillors and 20 town councillors. Do we actually need that many councillors for a town the size of Frome? No. It confuses the people I represent. They do not know at which level they are supposed to go to find the answer to simple problems. There are far more elected representatives than we need for good governance in Frome, so if there is a way of achieving a better outcome, we should look at it.
	We should respect the fact that there are different models. The first is the existing three-tier system. Another is the system that the county council may, or may not, decide to propose. The officers have been instructed to draw up a bid, but we do not know whether it will be made. I understand that at present their view is for a single county unitary. Although I understand the arguments for that, the difficulty is the size of the unitary authority proposed, in which proper accountability could be achieved only if it had a highly devolved structure. We would have to go for an area committee structure—the sort of thing that Conservatives gaily abandon when they take control of district councils—but it would mean much greater local decision making in the county structure, with efficiencies of scale in service of delivery. That is a perfectly respectable position, which should be argued and put before the people of Somerset.
	A third option is being canvassed among district councils in the authority. The present administrative county of Somerset is a little too big to be a single unitary council, owing to the remoteness of some areas, so perhaps we should consider more than one unitary. That may appeal to some people and was one of the partial outcomes of the Banham inquiry. It would have the benefit of efficiencies of scale as well as the local accountability that is so important. The difficulty is where to draw lines on the map, but a roughly convenient line could be drawn to link south Somerset to Mendip, and Taunton Deane to Sedgemoor and west Somerset, thereby giving an approximate community of interests on either side of the M5.
	There is a further option, which I really want the Minister to consider in the context of the consultation, if it goes ahead. I have no brief to speak for areas outside the county of Somerset, but the historical county, as I hope she knows, stretched not to the present northern boundary of the administrative county but up to the river Avon, and comprised the present unitary councils of North Somerset and Bath and North East Somerset—BANES, as it is known. Both those unitaries are relatively small, with populations well below the number that the Government now say is the optimum; in North Somerset, the population is about 190,000 and in BANES, it is about 170,000. The councils have a strong community of interest with some parts of the present administrative county of Somerset. Frome, which I represent, Shepton Mallet and possibly even the city of Wells are Mendip towns and have a strong community of interest with the area represented in BANES. I suspect—though I am less of an expert on the area—that the same would apply to a coastal strip relating more to Weston-super-Mare and the tourism industry in the west Mendip area and Sedgemoor.
	I therefore think it is possible to put forward the perfectly sensible proposition that we should be looking at perhaps four unitary authorities within the historical county of Somerset that would have a clear community of interest and clearly defined geographical boundaries. They would all be within Somerset—a point that I emphasise time and again. As a Somerset man, I am proud of our historical and cultural identity and I am not prepared to see it lost simply to allow some invention of a name for which no one has any affection. We live in Somerset, but our administration will be on a scale that is consonant with the demands of modern local government, while at the same time it will retain a degree of local accountability.
	The right hon. Member for Wells asked me to draw the lines on the map and decide what is best for Somerset. He may be able to do that, but I cannot, because these are all perfectly respectable options and, as far as I am concerned, it should be for the people of Somerset to decide what suits them best. I have to say that, given that the debate has been opened by the Government, whose intentions are clear, it is something with which we should engage, even if our response at the end of the day is to say no and opt for the status quo because it suits us best in our circumstances. What I reject is the right hon. Gentleman's contention that the debate should be closed down before it has even started.
	I hope that we do not get into the sort of, frankly, unpleasant internecine warfare that characterised the last dose of local government reorganisation in Somerset, where we had county and district fighting like ferrets in a bag about things that they should not have been fighting about, with all sides maintaining a monopoly of truth. No one has that monopoly of truth: there are different models—some good, some bad. If we treat them with respect, examine them dispassionately and put them before the people of Somerset in an effective manner, I hope that we will end up with the right result.

Ian Liddell-Grainger: Thank you, Mr. Deputy Speaker, for allowing me to intervene in the debate. The hon. Member for Somerton and Frome (Mr. Heath) makes an interesting point when he asks whether the issue is partisan or bipartisan. The answer is that it is, actually, bipartisan, in so far as the Labour party, a large proportion of the Liberal party and the Conservative party are working together to try to come up with a structure that will do the best that it can for Somerset.
	I certainly agree with both my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) and the hon. Member for Somerton and Frome that we need strong local government in Somerset. I am deeply offended, however, at the way in which the county council is trying to con the public. Yes, I understand, Mr. Deputy Speaker, that "con" is a rude word, but so are a lot of things and I wonder what would be appropriate. Somerset says that going unitary will save everybody money, but have those who say that actually done the sums? Have they heck! The only arithmetic that they quote was produced, believe it or not, by Shropshire county council.
	Councillor Cathy Bakewell, the leader of Somerset county council, says, that Shropshire will save more than £36 million in four years if it goes unitary. But, with all the morals of a fast-talking brush salesman, she conveniently forgets to point out that Shropshire will also spend £3 million on restructuring and end up with 182 job losses. The population of Somerset is 80 per cent. greater than that of Shropshire—even 70 per cent. greater than that of Northumberland, which we all know is a large county. I dread to think how many jobs will be lost in the five district councils given all the add-ons that will happen if this barmy idea goes through.
	Let me tell you, Mr. Deputy Speaker, and the Minister, that the unions are against it. Amicus and other unions, including the trade union council headed by one of my constituents, Mr. Dave Chappel, have made it very clear that they are opposed to it, and so has Unison, as I am sure the Minister knows well. They oppose it not because of job losses, but because they know it will not work. I quiver in my boots at the cost of actually satisfying La Bakewell's insatiable power. It is time to realise that that lady is conning us all.
	Shropshire county council happens to be Conservative controlled, but with one district and one borough beneath it—that is all. In other words, it does not compare in any way or form to Somerset county. More to the point, Shropshire is totally united. All three councils want to amalgamate, and all three have done their arithmetic and—surprise, surprise—have made it public. But back to Taunton we go: Councillor Bakewell's barmy army, which is rooting for the losing side—how pithy that is at the moment—needs a calculator, and it is making enemies all round. Every district council in the county—including South Somerset, which was alluded to by the hon. Member for Somerton and Frome—thinks that the plan is barking.
	There are so many unanswered questions, and both my right hon. Friend the Member for Wells and the hon. Gentleman have alluded to that fact. What will happen to the parish council in Bakewell's brave new world? Will they go up; will they go down; or will they go sideways? Will they get extra power? Will they? The silence, as usual, is deafening. What about all the real estate? Again, as has been suggested, if the district councils are flushed away, who will benefit from the sale of their offices? If that is a sensible business, I suspect that those involved will have done their calculations and worked out the answers already.
	Let us face it, Somerset is not a sensible business. Somerset already behaves like a crackpot, spend, spend, spend lottery winner. It is wasteful, greedy and completely inefficient. It is millions in the red, but who cares? Let us remember the rumpus over the road signs that has been alluded to. Somerset council invented the so-called speed management scheme, saying that it would save lives. Unfortunately, it did not. But the council did not consult anyone, least of all the police—a good starting point one would think.
	The first that people in Somerset knew about the scheme was when a load of muscular men from the county council turned up and started hammering in new road signs everywhere—thousands of them. In one village in my constituency, the signs said that drivers should go from 60 mph to 50, down to 20 and back up again in under a mile—remarkable. Even Michael Schumacher would be proud of that. Our country roads were littered with new metal signs. Even the national park glittered in the sunlight of that glow. But, eventually, even the county council realised that it might be a good idea to ask people what they thought. So people told it, and the silly signs were removed. Unfortunately, £2.5 million has been spent—wasted. What a fiasco!
	Now we have the small matter of windmills. Renewable energy is marvellous, so one cannot complain. My party leader is sticking one on his roof, so they must be all right. But Somerset county council believes that the divine right is to save the planet: forward and upwards, onward Christian soldiers. So Bakewell's blunderings now include building a forest of those things over the county farms and across Glastonbury tor. Every hon. Member knows the tor—it is the home of Avalon and allegedly the birthplace and burial place of Arthur—and the council wants to stick windmills on the top. Great—that will go down well at Glastonbury festival. The council also wants to put them on the Quantocks, which is the first area of outstanding natural beauty, and it is not going to work. To let the Minister know, the council is talking about putting them near schools in my constituency along the M5. What do people think? We have never been asked. We do not know.
	There are other examples. There has been a massive change in special needs teaching in Somerset, as my right hon. Friend and the hon. Gentleman know, and it has not been for the better. In West Somerset—the most rural district in England, into which London would fit very comfortably—that role has been cut: £80,000 has been taken away. Children now have to travel for an hour to go Taunton or Bridgwater to get special needs teaching. The county never asked anyone about that. It said that it was going to happen. We are being offered a team in two year's time—I can hardly wait—and I wonder whether those involved know where West Somerset is. We wait with bated breath, and yet again, we are quivering in our boots.
	Things got even better. Just after I became the MP—I took over from Lord King—the county council said, "In line with Government proposals, we are going to get rid of all the schools in Sedgemoor. We are going to have three super-schools. So you go in as a kiddy and you come out as an adult. We will do it all the way through." The council did not ask anyone in Sedgemoor. It thought that that did not matter; it thought, "They will love it." Every school rebelled, but that did not matter. "Onward and upward, utopia!" was the cry. Luckily, the Minister's former colleague Mr. Stephen Twigg, who is no longer in the House, said, "This is mad. It is ridiculous." He stopped the process dead in its tracks because there was no consultation. There was no feeling of hopefulness.
	That is now happening again. The plan is to get rid of four colleges and turn them into three. Three of our colleges have more than 1,000 pupils. One college has about 700. It is planned to turn those into three colleges of 900. I am not great at maths, but even I can work out that that does not work. Nobody has been asked about that. It is going to be done—again. There is no consultation. The people I am talking do not think, they cannot count and they simply drone on.
	Councillor Bakewell is the queen bee of a horrendous hive of profligacy. She flaps her wings and pops from flower to flower, like a diva at a comic opera. It is worrying. I suspect that, dare I say it, she can no longer tell the difference between what is right and what is wrong. Her administration is an unhealthy mixture of polyunsaturated policy and political pomposity. She has become the turkey twizzler of England's town halls. Jamie Oliver would not be proud.
	This is a dangerous diversion for democracy. The Government's White Paper unfortunately leaves out much that should be said. A lot of it is like a blank piece of paper. Frankly, I would not trust the county council with it if it were a fly paper, never mind anything else. I now fear that this dangerous lady's application for unitary status is pure municipal genitalia measurement. They want it to be bigger just for the sake of it. Have hon. Members ever noticed how many small people drive large cars? It is as though the six cylinders under the bonnet compensate for the lack elsewhere. Is it a case of today Somerset, tomorrow the world?
	With the logic of a Dalek, Mrs. Bakewell wheels round like a dustbin shouting, "Exterminate, exterminate!" I have not done much research into the Daleks, but I know that they wanted to take over the galaxy as quickly as possible. However, despite their threatening appearance, they were constructed out of cardboard with wheels on the bottom and sink plungers for arms. The Daleks, like Mrs. B, had ideas way above their station.
	So where on earth is the woolly-headed idea going to end up? Could the chief executive of Somerset county council be to blame? Perhaps he has been conducting long late-night sessions with some of the staff to emphasise what they are going to do. I have no idea. Changing local government is a serious process. It is always messy and pricey. It must never be undertaken just because council top dogs have an over-inflated opinion of themselves and what they can achieve.
	I invite the House to look back. Both my right hon. Friend the Member for Wells and the hon. Member for Somerton and Frome talked eloquently about the Banham report. Yes, it was set up by a Conservative Government. Yes, they wanted to look at the way that local government could be changed. Yes, they wanted to see whether it could be streamlined. However, Banham did his work well. He took one look at Somerset and said that it could not be one unitary authority. It is too big. It cannot be done. Banham was right; Bakewell is wrong. Big is not best. Big is out of touch and out of tune. Big, when it comes to local government, is very bad indeed.
	My message to the House and to Ministers is brutally straightforward. If they want chaos, anger, rising costs, uncertainty, worry, and a lack of understanding and clarity, fine—let them get on with it. But the price for the community—the community is what matters—will be unbearable. Democracy in the county will be damaged badly. I cannot agree with the hon. Member for Somerton and Frome when he says that there are too many in local government. My experiences of dealing with the few county councillors that I have now can be frustrating because, like us, they deal with a big area and they cannot always know what is going on. District councillors do know what is going on.

David Heath: I fear that the hon. Gentleman is falling into one of the common misapprehensions of this process, if it proceeds, which is that if the decision were to be for a unitary county, the county council, in its present form, would take on district functions—or vice versa, the district council would take on county council functions. The fact is that there would be a new authority, based on new boundaries, with new wards, new structures and—I would certainly expect—rather more councillors than the current county council, but perhaps fewer than the combination of the county council and the district council. That might be to everybody's benefit.

Ian Liddell-Grainger: I thank the hon. Gentleman for that helpful intervention. I take his point on board. To come back to what I said earlier, we just do not know at this stage. However, the hon. Gentleman might be aware—if he is not, I apologise—that the county council is thinking of setting up boards that will be consistent with the district council areas. If that is to be the case, why get rid of them in the first place?
	The district councils do a very good job. Even West Somerset, which is the largest district council in the United Kingdom, although it has the smallest resources, does a good job, given its size. West Somerset is vast. As I said earlier, London would fit into it without any problem at all—we would burp, but it would go. We already have that problem and the county would make it worse. The hon. Member for Somerton and Frome says that there would be more councillors, but how would that work? For example, would there be two in Taunton and two in Bridgwater—they are the bigger towns—and perhaps two in Yeovil? However, would rural areas then get representation?
	If the powers of the parishes and the town councils are to be bumped up, what can they do? Let us start with the parishes. They cannot be given the education portfolio—that is not on—and they certainly cannot be given roads because they could not cope. It might be possible to give them some responsibility for recycling, but they could not be given a lot of the functions that are carried out at present by the districts and the county, simply because the resources are not there. So, should one make the parishes bigger? If that were to happen, the local touch would be lost, and I would be really against that.

David Heath: indicated assent.

Ian Liddell-Grainger: I am glad that the hon. Gentleman agrees.
	How much more could the town councils be given? Again, they could not really be given education, unless that was at a very local level. They could possibly be given roads, but where would that start and stop? Again, recycling would be a possibility and refuse collection probably would not be a great problem, although that is a problem in rural areas. The lines of demarcation are not set or obvious. Again, I come back to saying that this is a barmy idea.
	I echo the view of my right hon. Friend the Member for Wells that we should be working in partnership and more closely together on the two-tier system. We already work in partnership. I believe that all the districts councils are working with either each other or the county very effectively. I have certainly not heard any complaints. Unless something has happened in South Somerset district council or Mendip of which I am not aware, I think that they are working well. If that is the case, will the Minister empower us to do more in a partnership and as strategic partners, but not chuck out the baby with the bath water by saying that the whole thing is going to be great because that will not happen—like with the Daleks, because they cannot go up stairs? I am afraid that the unitary megalomaniacs must be stopped now, because if we carry on like this, it will be too late.

Meg Munn: I am not quite sure how to follow that. I am informed that in the latest series, the Daleks can go up stairs, so things do change.
	I am grateful to the right hon. Member for Wells (Mr. Heathcoat-Amory) for giving us the opportunity to debate this issue. Our debate comes at an important time for local government following the recent publication of the local government White Paper. The White Paper is devolutionary and about rebalancing the relationship between central and local government and citizens and local government. I was a little surprised to hear the right hon. Gentleman expressing the view that somehow Somerset was the target of that and suggesting that it would become the largest unitary authority. I do not know whether he was referring to population size, because Birmingham is certainly the largest unitary authority. My city of Sheffield has a population of 500,000, but if the right hon. Gentleman was talking about physical size, that is a different matter. It was interesting to reflect on what he said, because Sheffield became a unitary authority thanks to the Conservative Government's abolition of South Yorkshire county council.
	Moving on to the issues raised in the debate, the White Paper proposes a new settlement for local government, offering a stronger role for local authorities, so that they can lead their communities and bring local public services together. Local authorities and other local service providers will be able to innovate and respond to local needs with a stronger focus on their top priorities. In short, our proposals ensure more accountability to citizens and communities, and will create stronger and more visible leadership. The White Paper offers local government the means to tackle the challenges of today, and to fully achieve its potential.
	In five years' time, local government will have a new look. It will be more proactive and innovative, and more responsive to local communities. However, if we are to achieve that, relationships need to change, including the relationship between central and local government, and between local government, its local partners and its citizens. Of course, in the case of two-tier local government areas, that includes the relationship between county and district. The status quo in two-tier areas is not an option.
	Across the country, people have told us that the arrangements in some two-tier authorities simply do not deliver the governance needed for today. For some time now, we have been engaged in an active, extensive public dialogue with local government and others about governance and restructuring. Ministerial discussions and round-table events were held last spring in each of the eight regions, all of which cover a number of counties, and we have been exploring the future of local government with local politicians, officials, businesses and residents. In some areas, there is real determination to make the current system work better, but in several other areas there is a strong feeling that the current system cannot be made to work.

Ian Liddell-Grainger: Can the Minister enlighten us on whether Somerset said that it would be interested in moving down such a route, and which officials from the county of Somerset went to the meetings? I accept that she cannot give those answers now, but could she do so in the near future?

Meg Munn: I shall be happy to provide the hon. Gentleman with any information that my Department has on meetings in his area, after the debate.
	As I was saying, in some areas there is real determination to make the system work, but people have also told us that they find the current system confusing, inefficient and ineffective. To take a small example, maintaining grass verges might be a matter for the parish council, but keeping the pavement clean might be the responsibility of district councils, and keeping the road clean might be up to the county council. The Government's response to such difficulties is to allow restructuring. There is no doubt but that there are risks and challenges for two-tier structures. There is the risk of confusion, duplication and inefficiency between the tiers, and there are challenges for small districts with small budgets and restricted boundaries that do not reflect social and economic patterns in the area.
	We know that many councils are working hard to overcome those risks and challenges, but it is important for councils in all two-tier areas to consider new ways of working. In some areas, there is a widely held view that moving to a unitary structure would be the best way of dealing with the risks and challenges. That would improve accountability and create stronger, more focused leadership. It would improve efficiency and, most importantly of all, it would improve outcomes for local people. In those areas, people have the opportunity, until 25 January, to give us proposals for unitary local government, and we expect to receive a small number of proposals that meet the criteria. That will not be the best route for everyone, but we expect the same outcomes, and the same level of efficiency gains, for areas and their citizens, regardless of whether councils choose the unitary route, or look to make improvements in the two-tier structure by providing stronger leadership and better co-ordinated services, and by making efficiencies through integrated service delivery and the sharing of back-office functions.
	For all areas continuing with two tiers, there will be significant change. We are asking all principal councils in those counties committed to aiming for an improved and innovative two-tier approach to act as pathfinders. The aims of the two-tier model pioneered by the pathfinders should be the same as the outcomes that can be achieved by a move to unitary structures. They include unified service delivery, so that there is no need for service users to understand whether the country, district or, indeed, other service provider is responsible; stronger leadership; effective accountability arrangements, so that people know who is responsible for which decision; shared back-office functions; and integrated service delivery. We are seeking new ways of working between the tiers, and we are asking for outline proposals by 25 January, after which we will designate pathfinders to develop the proposal.
	The pathfinders will be subject to evaluation at intervals—perhaps after two, four or six years. To achieve a proper comparison, we will make a similar evaluation of new unitaries. Until that is complete and we have the results, we do not intend to instigate change again. Proposals for unitary structures must be in accordance with the terms of the invitation. In submitting a proposal, councils must have regard to the guidance in the invitation that states that proposals should be presented in the form of a business case with a supporting financial framework. Until we have received and considered the bids, I hope that the right hon. Member for Wells and the hon. Members for Bridgwater (Mr. Liddell-Grainger) and for Somerton and Frome (Mr. Heath) appreciate that it is inappropriate for me to comment on the merits or otherwise of any particular proposal.
	I can, however, say something about the criteria that will be used to assess proposals. They must be affordable. Change must represent value for money, and it must be met from councils' existing resources. Bids must be supported by a broad cross-section of partners and stakeholders, service users and citizens. We will consider whether proposals provide strong, effective and accountable strategic leadership; and whether they deliver genuine opportunities for neighbourhood flexibility and empowerment, as well as value for money and equity in public services.

David Heathcoat-Amory: Will the Minister answer my specific question about the need for a vote? As I pointed out, that was promised by the Deputy Prime Minister earlier this year. Is it still Government policy to allow a referendum on proposals for unitary status?

Meg Munn: The Government are seeking a clear statement of support for that proposal. The document sets out the broad range of support that councils that wish to submit a bid must demonstrate. Councils are the elected democratic representatives of their areas, so it is appropriate for them to submit bids and demonstrate that they meet those criteria. Apart from that, the Government are not prescriptive.
	We will assess the proposals against the criteria that will be set out in more detail in our invitation. Once the proposals have been made, and depending on their number and quality, we hope to announce preliminary decisions by the end of March 2007. We want to consult stakeholders and make our final decisions by early July 2007. Councils that do not submit proposals for unitary status or to pioneer as a pathfinder still need to develop more effective working relationships to overcome the risks of confusion, duplication and inefficiency that can exist in two-tier areas. Our message to local authorities is that the status quo is not an option. We require them to continue to make improvements for their area and to their citizens' quality of life.

Ian Liddell-Grainger: One of Somerset's great achievements, as all Somerset Members will agree, is the partnership working between the district councils. However, it is difficult to demonstrate, because councils assess it with internal systems. Such working is effective, so I do not know what the Minister meant when she said that councils do not always work in that way in Somerset. I can assure her that, in my experience, that is not the case in any of the district councils in Somerset.

Meg Munn: With regard to their becoming two-tier pathfinders, we want to see what councils can demonstrate, particularly in that relationship between the tiers. Wider co-operation across local authorities is also to be welcomed. At the outset the right hon. Member for Wells mentioned multi-area agreements. Those are mechanisms whereby areas that go across more than one local authority can determine that they have interests have common. They may represent natural communities, so they may want to set out how they propose to work on priorities together, with the benefit of being able to require other agencies and organisations to co-operate with them in that, as set out in the White Paper.
	Government support that, but this evening we are discussing the relationship between the tiers of authorities. We want to achieve positive outcomes for local communities, regardless of the structure of local government in the area, so we are putting a much greater emphasis on local areas to ensure that they focus on the outcome and, if they have two tiers, on working together more efficiently and effectively. That was one of the aims of local government set out by the hon. Member for Somerton and Frome.
	We have taken the view that we will not be prescriptive about a particular area, which is why I thought the right hon. Member for Wells was off the mark in his characterisation of the Government as having set their sights on Somerset again. Local areas know what makes sense for them, but they need to be able to demonstrate that and demonstrate how they will achieve the aims of the White Paper within the appropriate structure for their area.
	As I said, councils that do not submit proposals for unitary status or to pioneer as a pathfinder still need to develop more effective working arrangements to overcome the risks of confusion, duplication and inefficiency that can exist in two-tier areas. We want local authorities to make improvements for their area and to improve the quality of life for citizens. We will support councils in getting there, either by moving to unitary status or by making the two-tier structure work much better. But in line with our emphasis on devolution to local government—this is where I agree with the right hon. Friend—the choices as to how to go about that are for councils, their partners and their citizens to make.
	 Question put and agreed to.
	 Adjourned accordingly at twenty-seven minutes to Ten o'clock.